Write short notes on: Insolvent trading.

Insolvent trading is a concept that says that if a company is insolvent and a director allows the company to incur a new debt, then the director can be personally liable for the new debts incurred. The law makes directors responsible for ensuring that their company does not trade while insolvent. There is no doubt that corporate powers of the Board of Directors continues to exist until a company is ordered to be wound up. Section 277 (3) of the Companies Act, 2013 states that the winding up order shall be deemed to be a notice of discharge to the officers, employees and workmen of the company, except when the business of the company is continued. However, even before winding up commences, which in the case other than voluntary winding up as stated in Section 357 of the Companies Act, 2013, is the date of presentation of a petition for the winding up of a company, or in the case of a voluntary winding up shall be deemed to commence on the date of passing of the resolution for voluntary winding up under section 304, the Board of Directors of the company must ensure that if there is no reasonable prospect of paying its debts, the company should not contract for further debts and obtain goods and services on credit. Such trading will constitute insolvent trading and it may expose its directors to consequences of insolvent trading (carrying on the business of a company with an intention to defraud). In 'Re: William C. Leitch Bros. [1932] 2 Ch. 71', it was held that if a company continues to carry on business and incurs debts at a time when to the knowledge of the director, there is no reasonable prospect of the creditor ever receiving payment of those debts, it is in general a proper inference that the company is carrying on business with intent to defraud.