ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration
Karel is a director of Brandt Co. Six months before the company went into insolvent liquidation, he realised there was no reasonable prospect of avoiding insolvent liquidation, but he continued trading and took further credit from suppliers. He did not act dishonestly and believed things might improve. Which of the following is the most likely outcome?
Karel may be ordered to contribute to the company's assets unless he proves he took every step to minimise creditors' losses. Wrongful trading needs no dishonesty, only continuing after he knew or should have concluded insolvent liquidation was unavoidable. Disqualification is not automatic.
- AHe cannot be liable because wrongful trading requires dishonesty
- BHe may be ordered to contribute to the company's assets unless he shows he took every step to minimise loss to creditorsCorrect
- CHe is automatically disqualified for life without any court hearing
Explanation
Wrongful trading arises where a director knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation and did not take every step to minimise loss to creditors. Dishonesty is not required, so A is wrong. Disqualification is a court order and is not automatic, so C is wrong.
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