Association of Chartered Certified Accountants · Corporate and Business Law
ACCA LW Corporate fraudulent and criminal behaviour: practice questions with answers
4 free exam-style questions on Corporate fraudulent and criminal behaviour for ACCA LW Corporate and Business Law. Try each one, then open the answer to read the explanation. Fincora has 25 original questions on this syllabus area.
Question 1
Which of the following must be proved to establish fraudulent trading, but is NOT needed to establish wrongful trading?
- A The company has gone into insolvent liquidation
- B The person concerned is or was a director of the company
- C The person knew, or ought to have concluded, that there was no reasonable prospect of the company avoiding insolvent liquidation
- D The business was carried on with intent to defraud creditors or for another fraudulent purpose
Show the answer
Answer: D. Fraudulent trading means carrying on a company's business with intent to defraud creditors or for any fraudulent purpose. It requires proof of dishonesty, can give rise to civil and criminal liability, and applies to anyone knowingly party to the fraud. Wrongful trading is a civil matter only. It applies to directors, including shadow directors, of a company in insolvent liquidation who knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation, and who did not take every step to minimise the loss to creditors. No dishonesty is required.
Question 2
For the corporate offence of failing to prevent bribery, which of the following is a 'relevant commercial organisation' that can commit the offence?
- A A partnership of tax advisers
- B A sole trader who employs ten staff
- C An individual director acting in a personal capacity
- D A self-employed bookkeeper who advises small businesses
Show the answer
Answer: A. The corporate offence of failing to prevent bribery is committed by a relevant commercial organisation when a person associated with it (such as an employee or agent performing services on its behalf) bribes another person intending to obtain or retain business, or a business advantage, for the organisation. A relevant commercial organisation is a body corporate or a partnership that carries on a business. The organisation has a defence if it had adequate procedures in place to prevent bribery. Individuals cannot commit the corporate offence, though they may commit the general offences of bribing or being bribed.
Question 3
Which of the following statements about fraudulent trading is correct?
- A Only a person who is, or was, a director of the company can be liable for fraudulent trading
- B Any person who was knowingly a party to carrying on the business with intent to defraud creditors may be liable, not only the company's directors
- C Fraudulent trading gives rise only to civil liability to contribute to the company's assets; it is not a criminal offence
- D Fraudulent trading can be established without proof of dishonesty, if the person ought to have known that the company could not avoid insolvent liquidation
Show the answer
Answer: B. Fraudulent trading occurs where the business of a company is carried on with intent to defraud creditors (of the company or any other person) or for any fraudulent purpose. Liability is not restricted to directors: any person knowingly a party to the fraudulent trading may be liable. It gives rise to criminal liability (fine and/or imprisonment) and, if the company is in liquidation, the court may order those responsible to make such contribution to the company's assets as it thinks proper. Dishonesty must be proved. Wrongful trading, by contrast, is a civil matter only, applies only to directors (including shadow directors) and is based on what the director knew or ought to have concluded about insolvent liquidation, without any need for dishonesty.
Question 4
A director of a company that has gone into insolvent liquidation is facing a claim by the liquidator for wrongful trading. Which of the following, if proved, gives the director a defence?
- A Throughout the period in question he honestly believed that the company would be able to trade its way out of its financial difficulties
- B He had no intention to defraud the company's creditors, and he took no part in any dishonest act in the running of the company
- C He was a non-executive director, who attended board meetings but took no part in the day-to-day management of the company
- D Once he ought to have concluded that insolvent liquidation was unavoidable, he took every step he ought to have taken to minimise creditors' loss
Show the answer
Answer: D. Wrongful trading may be alleged against a person who was a director (including a shadow director) of a company that has gone into insolvent liquidation (or administration) if, at some time before that, he knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation or administration. The director is judged by the general knowledge, skill and experience reasonably expected of a person carrying out his functions, and by his own actual knowledge, skill and experience. The court may order him to contribute to the company's assets.
The only defence is that, after that time, he took every step with a view to minimising the potential loss to the company's creditors that he ought to have taken (for example, taking professional advice, stopping further credit and calling in an insolvency practitioner). Honest optimism, absence of fraud and a non-executive role are not defences.
Keep practising Corporate fraudulent and criminal behaviour
Sign up free to practise this syllabus area in full, sit timed ACCA LW mocks and see your score by area. Every question on Fincora is written by us; none are past exam papers.
More ACCA LW syllabus areas
Practice questions are for study only and are not official exam questions. Back to ACCA LW mock exams and practice.