Acid
03-12-07, 02:10 PM
Fraudulent trading occurs where a business has been carried on with the intent to defraud creditors. As it involves intent, only those persons who took the decision to defraud the creditors are liable - this essentially means the directors either collectively or individually. Carrying on business can mean a single transaction or payment of debts as well as the more usual making trading arrangements and contracts.
Wrongful trading was developed because creditors of insolvent companies found it difficult to prove intent (fraudulent trading) when attempting to recover what was owed to them. Wrongful trading therefore applies where a company has gone into liquidation. Like fraudulent trading it is usually the directors who become liable as they make the decisions. Rather than intentionally defrauding creditors (which can occur at anytime), a person is liable for wrongful trading if they continue the business when they knew, or reasonably should have known the company could not avoid going into liquidation. Directors will also be liable if they did not take sufficient steps to minimise potential losses to creditors when the company becomes insolvent. This is essentially what points (a) and (b) discuss.
Best of luck for the exam tomorrow.
Acid
Wrongful trading was developed because creditors of insolvent companies found it difficult to prove intent (fraudulent trading) when attempting to recover what was owed to them. Wrongful trading therefore applies where a company has gone into liquidation. Like fraudulent trading it is usually the directors who become liable as they make the decisions. Rather than intentionally defrauding creditors (which can occur at anytime), a person is liable for wrongful trading if they continue the business when they knew, or reasonably should have known the company could not avoid going into liquidation. Directors will also be liable if they did not take sufficient steps to minimise potential losses to creditors when the company becomes insolvent. This is essentially what points (a) and (b) discuss.
Best of luck for the exam tomorrow.
Acid