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

Orlen Ltd went into insolvent liquidation. The liquidator brought a wrongful trading claim and the court ordered director Mira to contribute 200,000 to the company's assets. Which statement about that contribution is correct?

The contribution is paid to the liquidator and forms part of the company's assets for distribution to creditors under the normal order of priority. It is not paid directly to a particular creditor, nor to shareholders, who rank after creditors.

  1. AIt is paid to the liquidator and becomes part of the general assets available to all unsecured creditors, subject to any floating charge rules in the relevant lawCorrect
  2. BIt is paid directly to the creditor who suffered the greatest loss
  3. CIt is paid to the shareholders as compensation for lost share value

Explanation

A contribution order is made for the benefit of the company's assets, so it is paid to the liquidator and distributed under the normal order of priority. It is not paid to one chosen creditor or to shareholders, who rank behind creditors. B and C therefore fail.

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