Section A

Under Section 213 of the Insolvency Act 1986, what specific state of mind must be proven to establish 'fraudulent trading'?

Answer options:

Negligence in managing the company's accounts.

Actual dishonesty and intent to defraud creditors.

Failing to realize the company was going insolvent.

Breaching a fiduciary duty.

How to approach this question

Distinguish between the intent required for fraudulent trading versus wrongful trading.

Full Answer

B.Actual dishonesty and intent to defraud creditors.✓ Correct

Fraudulent trading (s.213 IA 1986) requires proof that the business of the company was carried on with intent to defraud creditors or for any fraudulent purpose. This requires actual dishonesty, which is a high burden of proof.

Common mistakes

Confusing fraudulent trading (requires actual dishonesty) with wrongful trading (requires only that the director knew or ought to have known insolvency was unavoidable).

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Practice the full ACCA LW — Corporate and Business Law Practice Exam 5

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