Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA LW Exams › False declaration of solvency vs wrongful trading
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- April 17, 2019 at 3:37 pm #513260
What is the difference between false declaration of solvency and wrongful trading?
Isn’t it the same because in both senses, it requires that the director ought to have known that the company would go into insolvent liquidation (unable to pay debts liquidation – right?) but just declared a solvency for the former and just ought to have known for wrongful trading?
2. Is wrongful trading only applicable at a state when the company was going into members voluntary liquidation (solvent liquidation) or is it only when they have gone into insolvent liquidation (creditors voluntary liquidation) but just failed to do anything about it?
I thought failing to do anything about it and keep on trading knowing that they cannot reasonable pay the debts incurred is fradulent trading.
Thank you very much sir
April 17, 2019 at 8:01 pm #513304Not quite the same – declaration of solvency is made before the special resolution is passed by the members to place the company into liquidation and the directors must have thought hard about this declaration
Wrongful trading is a situation that can creep up on unwary directors and suddenly they’re faced with a Court order putting the company into liquidation. It is potentially the case that the board had not considered the possibility of inability to pay debts and were simply hanging on in the hope that matters would improve.
In the case of wrongful trading it could be that, even though they SHOULD have realised the situation, they took no positive steps whereas in the case of the declaration the board clearly HAS taken those steps to determine the financial position
A declaration is required even though the company is hugely solvent – we still have to have a declaration and this would then clearly not be a wrongful trading situation
OK?
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