Question 1

Section B - Scenario 5

SCENARIO: 'EcoTransit Ltd' operates an electric scooter network. The company has been losing money for months. By 1st September, the directors realize there is no reasonable prospect of avoiding insolvent liquidation. However, they continue trading for another two months, ordering £50,000 of new scooters on credit. During this time, they also repay a £20,000 unsecured loan owed to the brother of one of the directors. The company finally enters insolvent liquidation on 1st November.

QUESTION: By continuing to trade and incur debt after 1st September, what specific civil offense have the directors committed under the Insolvency Act 1986?

Accepted Answer

Identify the offense of trading while knowingly insolvent without taking steps to minimize creditor loss.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Confusing wrongful trading with fraudulent trading. Wrongful trading is an objective test (ought to have known) and doesn't require malicious intent.

How to approach this question

Full Answer

Common mistakes

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

More questions from this exam