ACCA Applied Skills · Corporate and Business Law (Global) · Fraudulent and criminal behaviour
Zeta Ltd is being wound up and its liquidator discovers that, during the previous year, the directors carried on the company's business with the intention of defrauding its creditors. Which of the following best describes the key feature that distinguishes fraudulent trading from wrongful trading?
Fraudulent trading requires proof of dishonest intent to defraud creditors or for another fraudulent purpose. Wrongful trading needs no dishonesty; it is based on directors failing to take the steps a reasonably diligent director would have taken once they knew insolvent liquidation was unavoidable.
- AFraudulent trading requires proof of dishonest intent, whereas wrongful trading is based on a failure to meet a standard of care and skillCorrect
- BFraudulent trading applies only to directors, whereas wrongful trading applies to any person who dealt with the company
- CFraudulent trading can be claimed before the company is insolvent, whereas wrongful trading cannot
Explanation
Fraudulent trading needs actual dishonesty (intent to defraud creditors or another fraudulent purpose). Wrongful trading is judged on an objective and subjective standard of what a reasonable director would have done once insolvent liquidation was unavoidable. The second option is wrong because fraudulent trading can reach anyone knowingly party to the fraud, not only directors.
Did you get it right without looking?
One question tells you little. A timed set on Fraudulent and criminal behaviour shows your real accuracy, how long you take and where you lose marks.
More Fraudulent and criminal behaviour questions
- Tomas, an accountant, suspects that a client's transaction involves laundered funds. He tells the client that he has reported his suspicion …
- Aldan Ltd's sales manager gives a procurement officer at a state-owned hospital a cash payment so that the hospital will award Aldan a suppl…
- Karim, an accountant, knows that his client has been discussing the client's suspected laundering with the authorities. He mentions to anoth…
- Bright Ltd's finance director deliberately sends a false set of figures to a bank to obtain a loan, knowing the figures are untrue. Which de…
- Ravi runs a small trading company that is clearly insolvent. Over several months he orders goods on credit from suppliers, knowing the compa…
- Hasan, a director of Vega plc, sells shares in Vega shortly before the company publishes a profit warning that he knew about. Which of the f…