Fraudulent trading is the most serious civil and criminal exposure a Singapore company director faces in insolvency. Unlike insolvent trading — which turns on a director’s failure to stop the company from incurring further debts — fraudulent trading requires proof that the business was carried on with intent to defraud creditors, or for any fraudulent purpose. When it is proved, the personal consequences are severe: unlimited personal liability for the company’s debts, criminal conviction with imprisonment of up to seven years, and permanent reputational damage. This 2026 guide explains how the fraudulent trading regime works in Singapore, the standard the court applies, and what directors and third parties who “knowingly” participate can expect.
What Is a Fraudulent Trading Application
A fraudulent trading application is a court application, usually brought during or after the winding up or judicial management of a company, alleging that the business of the company was carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose. The application seeks a declaration that any person “knowingly a party” to that conduct is personally liable, without limit, for such of the company’s debts as the court thinks proper. Criminal charges under the same provision can be prosecuted in parallel.
Legal Basis — Section 238 IRDA
Fraudulent trading in Singapore corporate insolvency is now governed by Section 238 of the Insolvency, Restructuring and Dissolution Act 2018. The provision succeeds Section 340 of the old Companies Act and is one of the most powerful clawback tools available to liquidators.
The two limbs of the offence are:
- Civil liability under Section 238(1): the court may declare any persons who were knowingly parties to the carrying on of the business in the fraudulent manner personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company.
- Criminal liability under Section 238(3): every person who was knowingly a party to the carrying on of the business in that manner is guilty of an offence and liable on conviction to a fine not exceeding S$15,000 or to imprisonment for a term not exceeding seven years, or both.
The Standard of “Intent to Defraud”
Singapore courts have interpreted “intent to defraud” as requiring actual dishonesty judged by the standard of ordinary decent business conduct. Mere carelessness, poor judgement or optimism about the company’s prospects is not enough. What is required is:
- Real, subjective dishonesty in the sense of knowing that creditors would not be paid and yet continuing to take money from them.
- An intention to defraud that need not be aimed at a specific creditor — a general fraudulent scheme is enough.
- Actual knowledge, not merely constructive knowledge, on the part of the person sought to be made liable.
Singapore case law confirms the high evidential bar. Courts are reluctant to make a Section 238 finding without clear evidence of deliberate wrongdoing.
Who Can Apply
Civil applications under Section 238(1) can be brought by:
- The liquidator of the company after a winding-up order.
- The judicial manager during judicial management proceedings.
- A creditor or contributory, with leave of the court.
Criminal charges under Section 238(3) are prosecuted by the Attorney-General’s Chambers, usually on a referral from the liquidator or the Official Receiver.
Who Can Be Made Liable
The Section 238 net is wider than just directors. Anyone who was “knowingly a party” to the fraudulent conduct can be caught — including:
- Executive and non-executive directors who participated in decisions or turned a blind eye.
- Shadow directors and de facto directors — see our guide on shadow and de facto directors.
- Officers who executed the transactions with knowledge of their fraudulent purpose.
- Third-party advisors or bankers who knowingly assisted, though this is rare in practice and requires strong evidence.
- Related companies whose personnel actively participated.
Passive investors, sleeping shareholders and employees carrying out routine tasks without knowledge of the fraud are not caught.
Step-by-Step Process
Step 1 — Liquidator’s Investigation
The liquidator reviews the company’s financial history, contracts, correspondence and payment patterns to identify:
- Continued incurrence of trading debts after the company was clearly insolvent.
- Concealment of the true financial position from suppliers, customers and lenders.
- Diversion of assets to related parties before winding up.
- Round-tripping schemes or fictitious transactions.
Step 2 — Section 285 IRDA Examination
The liquidator may apply to court for a public or private examination of directors and other persons under Section 285 IRDA. This is a powerful discovery tool that compels attendance and production of documents.
Step 3 — Originating Application
The civil claim is commenced by originating application in the General Division of the High Court, with a supporting affidavit setting out the alleged fraud, the transactions involved, and the persons sought to be made liable.
Step 4 — Pleadings, Discovery and Trial
Fraudulent trading cases are document-heavy. Trial commonly runs 5 to 15 days and involves cross-examination of the directors, expert accountants and forensic reviewers. The standard of proof remains the balance of probabilities, but courts require cogent evidence commensurate with the seriousness of the allegation.
Step 5 — Court Order
If the claim succeeds, the court declares specific persons personally liable for a specified amount of the company’s debts. The order operates like a personal judgement debt: it can be enforced against the individual’s personal assets, income and property.
Documents Required
| Document | Purpose |
|---|---|
| Originating application | Formal court initiation |
| Detailed liquidator affidavit | Sets out the alleged fraud with particulars |
| Financial statements and management accounts | Show the insolvent trading position |
| Forensic accountant’s report | Traces cash and identifies diverted assets |
| Section 285 examination transcripts | Directors’ evidence under oath |
| Email traffic and board minutes | Show knowledge and intent |
| Contracts and invoices | Show the debts incurred with fraudulent intent |
Timeline and Costs
| Stage | Typical Duration | Indicative Cost |
|---|---|---|
| Investigation and forensic accounting | 3 to 12 months | S$50,000 – S$300,000 |
| Section 285 examinations | 1 to 3 months | S$20,000 – S$60,000 |
| Originating application, pleadings and discovery | 6 to 12 months | S$60,000 – S$150,000 |
| Trial preparation | 3 to 6 months | S$100,000 – S$250,000 |
| Trial and judgment | 2 to 6 months | S$150,000 – S$500,000+ |
Fraudulent trading actions are among the most expensive corporate insolvency claims in Singapore because of the forensic and evidential demands.
What Happens After the Order
Once the court declares personal liability, the liquidator can register the order as a judgement debt. Enforcement options include garnishing bank accounts, seizure of movable property under a Writ of Seizure and Sale, and application for a Bankruptcy Order against the individual. The court’s declaration also grounds:
- An application for disqualification of the individual from acting as a director for up to 15 years, see our directors’ disqualification guide.
- Referral to the Attorney-General’s Chambers for criminal prosecution under Section 238(3), which can proceed even after civil judgement.
- Regulatory notifications to ACRA, MAS or other regulators if the individual holds officer positions elsewhere.
Defences and Distinguishing Cases
A director faced with a fraudulent trading claim has several possible defences:
- No actual dishonesty. The most common defence. Show that decisions were made in good faith based on the information reasonably available, even if with hindsight they were mistaken.
- Genuine belief that the company would trade out. A director’s optimism, if genuinely held and reasonably based, is not fraud.
- Reliance on professional advice. Reliance on advice from qualified accountants, auditors, tax agents or lawyers can negate the required dishonesty, provided the advice was properly sought and disclosed to the advisor.
- Not knowingly a party. A non-executive director who was excluded from decisions or misled by the executives may be able to show lack of knowledge.
Fraudulent trading is often pleaded alongside insolvent trading. If the plaintiff cannot prove the higher fraud standard, the court may still find insolvent trading — a serious but distinct exposure.
Frequently Asked Questions
How is fraudulent trading different from insolvent trading?
Insolvent trading (Section 239 IRDA) is about incurring debts when the company cannot pay. Fraudulent trading (Section 238 IRDA) is about actual dishonesty in carrying on the business. Fraudulent trading is harder to prove but carries broader liability and criminal exposure.
Can non-executive directors be caught?
Only if they were knowingly a party. A non-executive who was misled or excluded from key decisions is not caught, but wilful blindness will be. Non-executives should insist on full information and record their objections in minutes.
Does directors’ and officers’ liability insurance cover this?
Most D&O policies exclude civil and criminal fraud. Coverage may extend to defence costs until a finding of fraud is made, at which point insurers can seek recovery.
What is the limitation period?
The civil claim under Section 238 IRDA is subject to a limitation period of six years from the date the cause of action accrued, extended in cases of concealed fraud.
Can a criminal conviction ground personal bankruptcy?
A criminal fine is a debt owed to the state. A civil order making a director personally liable for company debts is itself a debt that can ground bankruptcy proceedings if unpaid.
Are there parallel actions I should worry about?
Yes. Fraudulent trading is often accompanied by claims for breach of directors’ duties under Section 157 Companies Act, misfeasance under Section 240 IRDA, unfair preference under Section 225 IRDA, and transactions at undervalue under Section 226 IRDA. Related guides: breach of fiduciary duty, insolvent trading, and directors’ duties in the twilight zone.
Need Help With This Matter?
If your company is facing this situation, Raffles Corporate Services can assist with the groundwork — ACRA filings, compliance documentation, and coordinating with experienced Singapore law firms. For matters requiring court proceedings, we work with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice.
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This article is for general information only and does not constitute legal advice. For advice specific to your situation, please consult a qualified Singapore Advocate and Solicitor.
Further reading: the Insolvency, Restructuring and Dissolution Act 2018 (Section 238 and neighbouring provisions) on Singapore Statutes Online, procedural guidance from the Singapore Courts, and commentary on the fraudulent trading regime at JustFollowLaw.
— The Editorial Team, Raffles Corporate Services