The Companies Act prohibits a company from reckless trading , which means –A company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose.
A director of a company is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a manner prohibited by the Act.
The Commission may on reasonable grounds-believing that the company is carrying on reckless trading or is unable to pay its debts as they become due and payable in the normal course of business-
- Issue a notice to the company to show cause why the company should be permitted to continue carrying on its business, or trade to be complied with within 20 business days.
- Failure of which the commission may issue a compliance notice to the company requiring it to cease carrying on business or trade.