Question 1

**Scenario:** 'GeoThermal Grid Ltd' is facing severe financial difficulties. The directors realize the company cannot avoid insolvent liquidation, but they continue trading for six months, incurring £500,000 in new debts. Just before liquidation, they repay a £50,000 loan to the Managing Director's brother, while ignoring other creditors.

**Question:** How would the liquidator classify the £50,000 repayment to the Managing Director's brother?

Accepted Answer

Identify the action: choosing to pay one specific creditor over others right before going bust. This is 'preferring' a creditor.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Confusing a preference with a transaction at an undervalue. A preference involves paying off an existing debt; an undervalue transaction involves giving away assets or selling them too cheaply.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA LW — Corporate and Business Law Practice Exam 2

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