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107 ChaPter 16 – CompAny LAw: iLLeGALities Wrongful Trading • Previous law extended by Insolvency Act 1986 Previously, directors could only be liable for company’s debts where they were guilty of fraudulent trading – difficult to prove I.A. 1986 designed to give creditors increased protection An example of lifting the veil Directors ( and sometimes others too ) may be held liable when:• Company has commenced insolvent liquidation They knew, or should have known, that this was probable They held a position of power ( director ) Court may allocate financial penalty on the liquidator’s application Directors may escape liability if they can show the court that they took every step necessary to mitigate/ minimise the creditors’ potential loss 108 chaPter 16: cOmPany law: illeGalitieS A process whereby the proceeds of criminal activity are converted into assets appearing to have a legitimate origin Money Laundering Usually involves 3 distinct phases • Placement of the funds into legitimate business activity Transfer of money from business to business ( or place to place ) to conceal its original source Integration – the money takes on the appearance of having come from a legitimate source • Proceeds of Crime Act 2002 seeks to control money laundering by the creation of 3 categories of criminal activity • Laundering ( maximum 14 years prison and/or fine ) Failure to report ( maximum 5 years prison and/or fine ) Tipping-off ( maximum 5 years prison and/or fine ) • The offence of failure to report relates only to individuals acting in the course of business – for example, accountants chaPter 16: cOmPany law: illeGalitieS Insider Dealing Paper f4 109 Insider – a person who has a business connection with a company as a result of which they may acquire relevant information Dealing – buying or selling shares or securities in a company Unpublished price – sensitive information is information about the company which is not in the public domain….. ….is less than 6 months old, and…… ….is, on publication, likely to have a material impact on the market price of the company’s shares An insider in possession of unpublished price – sensitive information should not deal An offence is also committed if the insider encourages another person to deal A person dealing as a result of that encouragement, and believing the source to be an insider, is also committing an offence Disclosure of inside information, other than in the proper course of employment to an authorised person, is also an offence Some defences are available to be claimed 110 chaPter 16: cOmPany law: illeGalitieS