ExpertEasy1 markMultiple Choice
ACCA · Question 42 · Corporate and Business Law
Which of the following is a key difference between fraudulent trading and wrongful trading under the Insolvency Act 1986?
Which of the following is a key difference between fraudulent trading and wrongful trading under the Insolvency Act 1986?
Answer options:
A.
Fraudulent trading only applies to public companies.
B.
Fraudulent trading requires proof of actual dishonest intent, whereas wrongful trading only requires proof of negligence (failing to realize insolvency was unavoidable).
C.
Wrongful trading is a criminal offence, while fraudulent trading is only a civil liability.
D.
Only shareholders can be liable for wrongful trading.
How to approach this question
Distinguish between the mental elements (mens rea) required for the two offences.
Full Answer
B.Fraudulent trading requires proof of actual dishonest intent, whereas wrongful trading only requires proof of negligence (failing to realize insolvency was unavoidable).✓ Correct
Fraudulent trading (s.213 IA 1986) requires proof that business was carried on with the actual intent to defraud creditors (a high bar). Wrongful trading (s.214) does not require dishonesty; it occurs when a director knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation, and failed to take every step to minimize loss to creditors.
Common mistakes
Confusing the civil/criminal nature of the two, or thinking wrongful trading requires dishonesty.
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