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

Ravi runs a small trading company that is clearly insolvent. Over several months he orders goods on credit from suppliers, knowing the company cannot pay, and intends to sell the goods and take the cash for himself. Which consequence is most likely under typical company insolvency law?

Ravi may be personally liable to contribute to the company's assets and may face criminal penalties for fraudulent trading. He carried on the business intending to defraud creditors, and limited liability does not protect a director who knowingly does this.

  1. ANone, because limited liability always protects directors from personal liability
  2. BRavi may be held personally liable to contribute to the company's assets and may face criminal penalties for fraudulent tradingCorrect
  3. COnly the suppliers' contracts become void, with no action against Ravi

Explanation

Fraudulent trading arises where business is carried on with intent to defraud creditors. A court can order those knowingly party to it to contribute personally, and criminal penalties may follow. Limited liability does not shield a director from such conduct.

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