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X Ltd has entered into a number of contracts with Y Ltd. In which of the following situations could the directors be held personally liable for the debts contracted with Y Ltd?
(i) X Ltd has continued to trade at a time when insolvency appeared inevitable
(ii) X Ltd has become insolvent and is unable to pay its debts to Y Ltd
(iii) X Ltd has contracted for a purpose not specified in its articles of association
Suggested Answer: B
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28 comments · newest first
KI
Kiera
11 months ago
Just to clarify, (i) is definitely a big red flag!
AA
Aaron
11 months ago
Wait, are you sure about (ii)? Seems a bit off.
BE
Bernardine
11 months ago
I think (iii) could also be a factor.
DE
Denae
12 months ago
Totally agree, especially with (i) and (ii).
HE
Hermila
12 months ago
Directors can be liable if they trade while insolvent.
EL
Eliseo
12 months ago
I feel like (i) and (iii) are the stronger options, but I can't recall if (ii) alone would lead to personal liability.
MA
Malcom
1 year ago
I practiced a similar question where we looked at the articles of association, so (iii) could also be a reason for liability if the purpose wasn't specified.
CA
Carey
1 year ago
I'm not entirely sure, but I think (ii) alone might not make directors liable unless they were aware of the insolvency.
MA
Marjory
1 year ago
I remember discussing how directors can be held liable if they trade while insolvent, so I think (i) is definitely a possibility.
TO
Tomas
1 year ago
Alright, time to put my legal knowledge to the test. I've got a strategy in mind - I'll carefully evaluate each of the options and see which one best fits the criteria for director liability.
ME
Melita
1 year ago
I'm a bit unsure about this one. The wording of the question is making me pause. I'll need to re-read it a few times and think through the legal principles involved.
CA
Caprice
1 year ago
Okay, let's see. I think the key is understanding when the directors can be held personally responsible, even if the company is the one that entered the contracts. I'll need to analyze each option closely.
JU
Justine
1 year ago
Hmm, this seems like a tricky one. I'll need to carefully consider the different scenarios and how the directors could be held liable.
JE
Jennifer
1 year ago
Oh man, this question is really making my head spin. I think I'm going to have to go with the answer that involves the most personal liability for the directors. After all, that's the juiciest option, right?
AL
Alecia
1 year ago
I think the answer is B as well. It makes sense that the directors would be on the hook if they kept the company going when they knew it was doomed. But the article thing is also interesting - I wonder if that's a common issue?
LE
Lenna
1 year ago
Haha, this question is a real brain-teaser! I'm just glad I'm not the one who has to make these tough decisions as a director. It's a tough job, that's for sure.
LA
Lauran
1 year ago
C) (ii) only
NI
Nidia
1 year ago
B) (i) and (ii) only
JA
Jaleesa
1 year ago
A) (i) only
WE
Weldon
2 years ago
Hmm, I'm not sure. If the directors have been engaging in some shady activities, like contracting for a purpose not specified in the articles, that could also make them personally liable, right? I'll have to think this one through.
HU
Huey
1 year ago
D) (iii) only
BA
Barrett
1 year ago
C) (ii) only
OC
Octavio
1 year ago
B) (i) and (ii) only
MO
Mollie
1 year ago
A) (i) only
CR
Cristy
2 years ago
I think the correct answer is B. The directors can be held personally liable if the company has continued to trade when insolvency was inevitable, or if the company has become insolvent and is unable to pay its debts.
NO
Noel
2 years ago
I believe the directors could also be held liable in situation (ii) as the company is unable to pay its debts.
BO
Bobbye
2 years ago
I agree with Rochell, because trading when insolvency is inevitable shows negligence.
RO
Rochell
2 years ago
I think the directors could be held liable in situation (i) only.