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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Dalia Ltd is being wound up. The liquidator seeks a contribution from a director for wrongful trading. In deciding whether the director should have concluded there was no reasonable prospect of avoiding insolvent liquidation, which standard does the court apply?

The court applies a combined test: the knowledge, skill and experience reasonably expected of a person carrying out the director's functions, raised to the director's own higher actual skill where relevant. It is not purely subjective, and no accountant standard is imposed.

  1. AOnly the director's actual personal knowledge and skill
  2. BThe general knowledge, skill and experience reasonably expected of a person in that role, and any greater actual knowledge or skill the director hasCorrect
  3. CThe standard of a qualified accountant in every case

Explanation

The test is both objective and subjective: the minimum is what a reasonably diligent person in that role would know and do, raised if the director actually has greater skill. Option A ignores the objective minimum. Option C imposes a professional standard that the law does not require.

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