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ACCA Applied Skills · Corporate and Business Law (Global) · Fraudulent and criminal behaviour

Halden Ltd is in insolvent liquidation. The liquidator brings a successful wrongful trading claim against two directors. The court orders each to contribute to the company's assets. Which statement correctly describes the contribution?

The contribution is paid into the company's assets for creditors generally, not to individual creditors. The director's conduct is judged by a dual test: the standard of a reasonably diligent person, raised by the director's own actual knowledge, skill and experience. The amount is compensatory, not a fixed penalty.

  1. AThe sum is paid to the company's assets for the benefit of creditors generally, and may be ordered against a director who is judged by the standard of a reasonably diligent person with the knowledge, skill and experience of that directorCorrect
  2. BThe sum is paid directly to the creditors who dealt with the company after the date insolvency became unavoidable, as compensation for their individual losses
  3. CThe sum is a fixed penalty set by statute and does not depend on the loss caused to creditors

Explanation

A wrongful trading contribution is paid into the company's assets and is then distributed through the liquidation, not directly to particular creditors. The court judges the director against an objective minimum standard, raised where the director has greater skill or experience. The amount is compensatory and discretionary, not a fixed penalty.

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