Acca aaa s21 Notes

6. Benefits of administration
If successful, the company will continue as a going concern:
๏
shareholders continue to hold shares and, hopefully, eventually receive a return on their 
investment. (Compared with very little/nothing if the company is wound up.)
๏
for creditors, improved cash flows should allow debts to be repaid and trading relationships can 
be maintained. 
๏
continuing employment of some staff (though there may be some redundancies in the rescue 
plan). (Compared with automatic dismissal in a compulsory liquidation.)
September 2021 to June 2022 exams
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7. Fraudulent and wrongful trading
These terms are defined in the Insolvency Act 1986.
See also Chapter 15 of our 
ACCA LW (ENG) notes
Fraudulent trading (s.213)
Wrongful trading (s.214)
Definition: Carrying on the 
business of an insolvent 
company …
… with the 
intent
to defraud 
the company’s creditors
… when it ought to have been 
concluded that there was no 
reasonable prospect of 
avoiding insolvent liquidation 
(hence creditors would suffer 
losses)
Action can be brought against:
any
person who is 
knowingly
a 
party to the fraudulent trading
company 
directors
(including 
shadow directors) 
only
Type of offence
criminal offence
civil wrong
Standard of proof
‘beyond reasonable doubt’
‘on the balance of probabilities’
Penalties/liabilities
Imprisonment (max 10 years)
Personal (civil) liability for 
company’s debts
Director’s disqualification (max 
15 years)
Personal (civil) liability for 
company’s debts
Director’s disqualification (max 
15 years)