Fraudulent and Wrongful trading

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MC Question 14

In relation to wrongful trading, the standard against which the conduct of directors will be assessed is which of the following?

A Purely subjective, depending on the actual skill of the director
B Purely objective, depending on what is expected of a director in that position
C A mixture of subjective and objective but only to increase potential liability
D A mixture of subjective and objective but only to reduce potential liability

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Question 10.

Gim and Hom formed an online supply company, IMP Ltd, in 2010 and have been its sole directors since then. 
The business has never made a profit and has only managed to carry on trading by using its £50,000 overdraft facility with Just Bank plc.

In January 2012, IMP Ltd entered into a large deal and by October 2012 it was obvious that it had lost £100,000 on the contract. Gim and Hom treated the loss as merely unfortunate and carried on trading although this meant unilaterally ignoring the limit on their agreed overdraft with Just Bank plc, and delaying the payments on their other outstanding contracts. They justified their decision on the grounds that they could recover all their losses to date from the profits of a new contract. Unfortunately, their optimism was misplaced and the new contract lost an additional £100,000.

In February 2014 Gim and Hom applied to have IMP Ltd wound up, owing debts of £250,000.

The realisable value of the company’s assets is £10,000.

Required:

Analyse the above situation from the perspective of Gim and Hom’s potential liability for either fraudulent or wrongful trading under the Insolvency Act 1986.

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