ACCA Applied Skills · Corporate and Business Law (Global) · Corporations and legal personality
Rena is the sole director of Tarn Ltd. She continued to trade and take customer deposits for months after she knew the company could not avoid insolvent liquidation. The liquidator seeks to make her personally contribute to the company's assets. Which statement is correct?
Rena may be made personally liable under statutory fraudulent or wrongful trading provisions. These are statutory exceptions to limited liability, applying to directors who continue trading knowing insolvent liquidation is unavoidable. Her shareholding is irrelevant and separate personality does not protect her here.
- ARena is protected because the company is a separate legal person in all circumstances
- BRena may be made personally liable under statutory provisions on fraudulent or wrongful trading, as an exception to limited liabilityCorrect
- CRena is liable only if she holds more than half of the shares
Explanation
Statute imposes personal liability on directors who carry on business with intent to defraud or who trade wrongfully when they know insolvent liquidation is unavoidable. This is a statutory lifting of the veil. Shareholding level is irrelevant, and separate personality does not shield directors from such provisions.
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