Re Patrick and Lyon Ltd (1933) Ch 786

Company law, Fraud, Liquidation Companies Act 1929 Director, Fraudulent purpose, Personal liability

 

Re Patrick and Lyon Ltd (1933) concerns fraudulent purpose and personal liability under the Companies Act 1929. 

 

 

Keywords:

Company law – Fraud – Liquidation Companies Act 1929 –  Director – Fraudulent purpose – Personal liability

Facts:

In the case of Re Patrick and Lyon Ltd (1933), the applicants were creditors of the respondent company, which was in liquidation. Under the summons, issued in October 1932, the applicants sought a declaration. They requested that the director of the respondent company be personally responsible for all the debts and liabilities. The ground for liability shall be the charge of carrying on the company’s business with the intent to defraud creditors.

Issue:

Whether the business of the company was carried on for a fraudulent purpose within the meaning of section 275 of the Companies Act 1929?

Held:

The court examined the issue of fraudulent purpose on the part of the respondent company and laid down the following findings. In particular, the case was considered as very unusual. It derived from the facts that there was a scheme to defraud creditors by extending the life of the company when there was no reason for doing so. The company lost money from the beginning, never made a profit, and by the end of 1931 had exhausted its reserves.

However, the court held that the respondent company had not deliberately intended to conduct its business with the fraudulent purpose or with the view to defraud creditors. There was no enough evidence to justify the charge of fraudulent conduct. As a result, the court dismissed the applicants’ summons, requesting the director’s personal liability.

 

Considered: Re William C Leitch Brothers Ltd (1932) 2 Ch 71.

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