ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration
Zentra Ltd is in insolvent liquidation. The liquidator finds that the directors continued to trade for eight months after they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation, and that creditors' losses increased as a result. Under the Global variant of the LW syllabus, which type of liability is most directly engaged?
Wrongful trading applies. Directors who continue trading after they knew or should have concluded that insolvent liquidation could not reasonably be avoided may be made liable to contribute to the company's assets. Dishonesty is not required, unlike fraudulent trading.
- AWrongful tradingCorrect
- BFraudulent trading
- CPreference
- DTransaction at an undervalue
Explanation
Wrongful trading arises where directors continue trading when they knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation. No dishonest intent is needed, which is why fraudulent trading is wrong here: that requires intent to defraud. Preferences and undervalue transactions concern specific pre-liquidation transfers, not continued trading.
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