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Section 506 of Insolvency Act CAP 53: Power of the Court to make orders against officers of company engaging in wrongful trading

    

(1) This section applies—
(a) to a company that is in insolvent liquidation; and
(b) to a person who, at a time before the commencement of the liquidation, was an officer of the company.
(2) For the purposes of this section—
(a) a company is in insolvent liquidation if, at the time the liquidation commences, its assets are insufficient for the payment of its debts and other liabilities and the expenses of the liquidation; and
(b) the person in respect of whom an application is made under subsection (3) is the respondent to the application.
(3) If, in the course of the liquidation of a company, it appears to the liquidator that a person to whom this section applies knew or ought to have known that there was no reasonable prospect that the company would avoid being placed in insolvent liquidation, the liquidator may make an application to the Court for an order under subsection (5).
(4) The Court may hear an application made under subsection (3) only if the person in respect of whom the application was made has been served with a copy of the application.
(5) On the hearing of an application made under subsection (3), the Court may make an order declaring the respondent to be liable to make such contribution (if any) to the company's assets as the Court considers appropriate, but only if it is satisfied that, at the relevant time, the respondent knew or ought to have known that there was no reasonable prospect that the company would avoid being placed in insolvent liquidation.
(6) However, the Court may not make such an order if satisfied that the respondent took such steps to avoid potential loss to the company's creditors as the respondent ought reasonably to have taken, assuming that the respondent knew that there was no reasonable prospect of the company avoiding going into solvent liquidation.
(7) Nothing in this section affects the operation of section 505.
(8) If the Court makes an order against a person under subsection (5), it may also make an order disqualifying the person from—
(a) being or acting as a director of a company or limited liability partnership;
(b) being or acting as a liquidator, provisional liquidator or administrator of a company or limited liability partnership;
(c) being or acting as a supervisor of a voluntary arrangement approved by the company or limited liability partnership; or
(d) in any way, whether directly or indirectly, being concerned in the promotion, formation or management of a company or limited liability partnership,
for such period, not exceeding fifteen years, as may be specified in the order.

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Disclaimer: This document is not to be taken as legal advise.

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