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KLDD
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Hello everyone! I am taking the LPC and have a to submit a practical legal research memorandum. Does anyone can give me any ideas of where to look or what keywords to use?

Here's a summary of the facts of the question:
We act for S who are former auditors of E Ltd. E Ltd is in liquidation and it's liquidator has brought an action for fraudulent trading against a director of E Ltd. The proceedings are regarding the director's dishonesty in running the company. The liquidator now claims that S were involved in the fraudulent trading. The liquidator wants to draw S into the action by way of contribution proceedings.

Am I right to search for fraudulent trading under s.213 Insolvency Act?

Also, do you know which search terms I could look for to answer the following:
- Can the liquidator add S in the claim of fraudulent trading against the director?
- What the liquidator needs to prove
- Could S defend on the basis that any dishonesty was on the part of the director alone?

Any ideas would be a great help. Thank you!
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Forum User
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Do you need to search for words? If so maybe "fraudulent trading accessory liability", or "fraudulent trading knowingly parties"? [The latter on the basis that 'knowingly parties' is the phrase used in the Act? In reality I would just search for cases discussing s. 213(2) of the Act, and I would find Morris v Bank of India and that would answer the substantive law questions.

I don't know if contribution proceedings means something different on the LPC than it does to me. A claim for contribution is brought by a defendant, not a claimant. The liquidator should just apply to join the auditors as parties under CPR 19.2(2)(a) if the claim form has been served.
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KLDD
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Thank you for the help! I submitted my assessment yesterday, we will see how it goes!
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Sinnoh
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(Original post by Annabel123432)
Hey, guidance would be great as I am currently having the same problem!
(Original post by dreddy95)
Hiya, I've just come across your question and I'm doing the LPC this year and have the same scenario to do for PLR! Do you have any guidance? I've found the Morris case but not sure I'm going in the right direction
This thread is three years old, please start a new one instead of bumping an old one
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katiefisher342
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(Original post by Annabel123432)
Hey, guidance would be great as I am currently having the same problem!
hi! I also have this question and I'm so lost on it, I haven't found anything on Halsbury, have you?
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legalhelp
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Have you both read s. 213(2) Insolvency Act? It makes it pretty clear the circumstances in which the liquidators can apply to the court to draw a third party into an action for fraudulent trading: knowing involvement in the activity described in s. 213(1). So the key questions for your client are (1) whether there is in fact any evidence of fraudulent trading, and if there is, (2) whether there is any evidence your client, as the auditors, were aware of that fact. You would then need to look at the relevant authorities to see in what circumstances auditors have been found to have knowledge of fraudulent trading within a company they audit (for example, can knowledge be inferred where it would be completely unreasonable for them not to have knowledge?) As a general point also, Halsburys is really not a particularly comprehensive or useful research tool. At a minimum, you need to look at the underlying statute (I’m always amazed how few students do this!) and linked authorities on Westlaw.
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legalhelp
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(Original post by Eheh1414)
I’m just confused as to what defence an auditor has in relation to such claim. I understand the circumstances in which a liquidator can apply/what needs to be proved
Great, in that case you will understand what a third party will need to do in terms of a defence - it’s a question of identifying the evidence that points *away* from, or otherwise undermines, what the liquidator would need to establish in order to join the third party.
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katiefisher342
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(Original post by legalhelp)
Great, in that case you will understand what a third party will need to do in terms of a defence - it’s a question of identifying the evidence that points *away* from, or otherwise undermines, what the liquidator would need to establish in order to join the third party.
hi I found the relevant information about fraudulent trading on practical law but what I need is another secondary source to confirm what ive found but I can't seem to find anything on halsbury? also in the information given, we're actually not told of the evidence that the auditor has about their involvement? also is Section 215 of the IA 1986 relevant towards this for a remedy? I don't quite understand what the section is talking about? I can't seem to find anything on what an auditor can do to defend the claim as the companies act isn't relevant to it?
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legalhelp
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(Original post by katiefisher342)
hi I found the relevant information about fraudulent trading on practical law but what I need is another secondary source to confirm what ive found but I can't seem to find anything on halsbury? also in the information given, we're actually not told of the evidence that the auditor has about their involvement? also is Section 215 of the IA 1986 relevant towards this for a remedy? I don't quite understand what the section is talking about? I can't seem to find anything on what an auditor can do to defend the claim as the companies act isn't relevant to it?
Hi there. I think you are getting confused between two separate processes. Section 993 of the Companies Act deals with the criminal offence of fraudulent trading (I suspect this is what you are looking at on PLC). If someone is knowingly a party to fraudulent trading within the definition in s. 993(1) CA, they can be prosecuted criminally for that offence. However your scenario - if it is the same one set out in the OP - relates to contribution proceedings brought by a company's liquidators. This is a civil process, not a criminal one. So when a company goes into liquidation, liquidators are appointed. If the liquidators (L) think that a director, auditor, or anyone else (P) has been a knowing party to fraudulent trading, then L can apply to the court to require that P makes a contribution (i.e. pays money) to the company, effectively to make up some of the loss that they have caused to creditors. This power is set out in s. 213 of the Insolvency Act. P might also be prosecuted for fraudulent trading under the Companies Act, but that's not up to the liquidators to decide.

Section 215 of the Insolvency Act sets out some of the rules relating to the liquidator's application to the court that I just described above. I'm not sure what you mean about it being "relevant towards this for a remedy"?

To the last part of your question, it's not a question of there being a specific defence available in the same way as, for example, lawful self-defence is a defence to a charge of murder. If the liquidator applies to the court under s. 213, it will be on the basis that they think your client (the auditor) was knowingly involved in fraudulent trading. Your job would be to establish as a matter of fact (1) whether there was any fraudulent trading, and if so, (2) whether your clients knew about it, in their capacity as the auditors of the company. If the evidence on either of those two points doesn't stack up, then that is how you defend the proceedings.

Finally, I would point out the same thing that I said to the previous poster. Your key source here is the statute, not the commentary on the statute. You need to read it carefully, understand it, include references to it in your memorandum, and set it out in a way that a non-lawyer client can understand. Please don't include references to Halsburys in your memo unless that is something you have been specifically instructed to do by your tutors.
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