The collapse in dotcom share values has vindicated every guru and pundit who predicted that the Internet would change the world. Admittedly, few meant initiating a world recession when they suggested that new technology would change the global economy. Information technology is a winner-takes-all environment - a firm that fails to dominate its sector may be forced out of business in a short time. The prominence of the current dotcom fallout is caused by the huge amounts of money that were speedily invested and then removed from immature firms. The economic problems caused by this process are immediately apparent, the legal complications may take longer to emerge. One concern is that, as dotcoms run out of cash, they may engage in reckless trading - where the directors of a limited liability company carry on business knowing it will cause loss to creditors or where they take on debt knowing it cannot be repaid. If reckless trading is proven, the High Court may order that the directors be held personally liable for the company's debts. This rule may mean that, even if directors can get loans to stay in business, they may need to be careful before accepting them. The most likely scenario in which an allegation of reckless trading would be made is where a dotcom continues in business without informing staff and suppliers of their position. Perversely, the poor business practices of many dotcoms may protect their directors from this sort of allegation. A survey carried out by PricewaterhouseCoopers, revealed that a quarter of 400 dotcoms surveyed did not have cashflow forecasts or did not hold board meetings at least once a month - half of those surveyed did not hold proper board meetings. Reckless trading is defined subjectively - the directors must know that they cannot meet their debts. If a firm does not hold proper board meetings or have cashflow forecasts then the directors may not have the requisite knowledge. But it could be argued that failing to provide such basics of corporate management is a form of recklessness. Once a dotcom goes bankrupt, its assets may be very limited. Such assets may consist of intellectual property (IP) such as trademarks or copyright. If IP is not being actively or successfully exploited it can be very difficult to value or sell. Boo.com's innovative software cost more than £35 million (#44.5 million) to develop but was sold for £250,000 after it went bust, having gone through more than £125 million in equity and leaving debts of £25 million. It may be that no buyer will be found for a firm's IP and, in this situation, it will become the property of the state. So if dotcoms continue to go bankrupt, some interesting IP portfolios may be effectively nationalised. The other significant asset held by dotcoms is personal data of existing and potential customers. Selling this may not be easy or lucrative. Toysmart.com's majority shareholder, Disney, was embarrassed into paying $50,000 (#55,990) for the customer list of the failed website - the only other offer valued it at $15,495. Selling personal data may prove problematic in the Republic as it could infringe on the principles set out in the Data Protection Act 1988. The Republic has yet to implement the Data Protection Directive, which provides that individuals would have to be informed that the data was being sold and could object to it being processed in this way. The domestic Irish market for dotcoms never seemed to develop the euphoria that attached to the US's Nasdaq or Germany's Neuer Markt, which has seen the management of former stars infomatec.de and EM.TV investigated for fraud. Irish authorities may never have to identify the point at which legitimate enthusiasm for Internet business became criminal fraud and deception. This is fortunate, as the existing Irish law on fraud and deception is inadequate, although it is due to be updated by the Criminal Justice (Theft and Fraud Offences) Bill 2000. It was not unheard of for European dotcoms to simply copy their business plans from the offer documentation and filings of American IPOs. When some dotcoms could not deliver on raised expectations there could be a considerable temptation to manipulate reports. The most striking example of this is Belgian language software provider Lernout. Its South Korean subsidiary colluded with banks and used employees to pose as customers in an effort to cover up falsified sales records from auditors. The subsidiary accounted for half of Lernout's sales and paid its head more than £25 million in bonuses. Similarly, US e-mail provider Critical Path has admitted faking 9 per cent of its sales figures for 2000. But US sites must also fear shareholder litigation. Class-action lawsuits are being taken against Linux provider Redhat by some of those who bought shares in its IPO. Amazon.com has been the target of repeated law suits in relation to its stock. Such actions do succeed - recently Network Associates settled such an action for $35 million.

Denis Kelleher is a practising barrister and co-author of Information Technology Law in Ireland (Butterworths: Dublin), www.ictlaw.com