ACCA Applied Skills · Corporate and Business Law (Global) · Fraudulent and criminal behaviour
Marlow Ltd went into insolvent liquidation. Its director, Priya, realised in March that there was no reasonable prospect of avoiding insolvent liquidation. She took no steps to minimise losses to creditors and traded on until September, but she acted honestly throughout. Which statement is correct about Priya's position?
Priya may be liable for wrongful trading unless she proves she took every step a reasonable director would have taken to minimise creditors' losses. Wrongful trading does not require dishonesty, so her honesty is no defence, and fraudulent trading is not established without intent to defraud.
- AShe cannot be liable for wrongful trading because she did not act dishonestly
- BShe may be liable for wrongful trading unless she shows she took every step a reasonable director would have taken to minimise loss to creditorsCorrect
- CShe is automatically liable for fraudulent trading because she continued trading after March
Explanation
Wrongful trading needs no dishonesty. The liquidator must show the director knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation. The director's defence is showing she took every step a reasonable director would have taken to minimise potential loss to creditors. Honesty alone is not a defence, and fraudulent trading requires intent to defraud.
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