Skip to content

CS Executive · Company Law and Practice · Introduction to Company Law

Under the Companies Act, 2013, if a person is a director and the company's affairs are carried on with intent to defraud creditors, what is the usual consequence for those knowingly party to it?

Persons knowingly party to carrying on business with intent to defraud creditors can be held personally liable for the company's debts or liabilities as the court directs, besides statutory penalties for fraud. This is a statutory instance of lifting the corporate veil.

  1. AThey are personally liable for the company's debts or liabilities as the court may direct, in addition to penaltiesCorrect
  2. BThey are liable only to resign from office
  3. CNothing, since the company alone bears liability
  4. DThey lose only voting rights in the company

Explanation

Where business is carried on with intent to defraud creditors or for a fraudulent purpose, persons knowingly party to it face personal liability, and may be punished for fraud under the Act. This is a statutory instance of the veil being lifted. Resignation or loss of voting rights is not the stated consequence.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Company Law shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Company LawFree diagnostic mock

More Introduction to Company Law questions