ACCA Applied Skills · Corporate and Business Law (Global) · Fraudulent and criminal behaviour
Zentra Ltd is in insolvent liquidation. The liquidator discovers that, during the previous year, the directors continued to run the business and took on new credit, knowing it was very likely that the company could not avoid insolvent liquidation, and with intent to defraud a particular supplier. Which of the following best describes the liability that the directors face for these actions?
The directors face fraudulent trading liability. Carrying on business with intent to defraud creditors is fraudulent trading, which requires proof of dishonesty. It can lead to a personal contribution order and also to criminal penalties, unlike wrongful trading, which needs no dishonest intent.
- AFraudulent trading, which requires proof of dishonest intent and can also carry criminal liabilityCorrect
- BWrongful trading, which requires proof of dishonest intent but carries only civil liability
- CMisfeasance, which applies only to directors who have taken company property for themselves
Explanation
Fraudulent trading arises where the business is carried on with intent to defraud creditors or for any fraudulent purpose. It requires proof of dishonesty, so it can lead to both a civil contribution order and criminal penalties. Wrongful trading does not require dishonesty, so the second option is wrong. Misfeasance is not limited to taking property for oneself.
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