ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration
Marlow Ltd went into insolvent liquidation. The liquidator alleges that its managing director, Priya, carried on the business knowing that the company could not pay its debts and deliberately took deposits from customers for goods she knew would never be delivered. Which statement about the claim is correct?
Fraudulent trading requires proof of actual dishonest intent to defraud creditors, and the court can order those responsible to contribute to the company's assets. Mere negligence or inability to pay debts is not enough, as those are not the test for fraud.
- ALiability requires proof of actual dishonest intent to defraud creditors, and the court may order contribution to the company's assetsCorrect
- BLiability only requires proof that Priya was negligent in failing to foresee insolvency
- CLiability can be imposed only on Priya as a director and never on other persons knowingly party to the fraud
- DLiability arises automatically because the company was unable to pay its debts
Explanation
Fraudulent trading requires actual dishonesty, meaning intent to defraud creditors or others, and can result in a court order for contribution. Negligence is the wrongful trading standard, so the second option is wrong. Persons other than directors who knowingly take part can also be liable, so the third is wrong. Insolvency alone does not create liability.
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