Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What happens to a company once a winding up order is granted?

1. The company's assets remain intact

2. The company must cease trading

3. The company can continue under new management

4. The company automatically becomes a charity

The correct answer is: The company must cease trading

Once a winding up order is granted, the company is legally required to cease trading. This marks the beginning of the liquidation process, where the company’s operations come to an end, and it is no longer able to conduct any business activities. The focus shifts to settling debts and distributing any remaining assets to creditors. The other choices do not accurately reflect the implications of a winding up order. For instance, although the company’s assets may be sold to pay creditors, they do not remain intact; they are typically liquidated. The option regarding the company continuing under new management is not feasible, as the winding up process entails dissolution of the organization. Lastly, a company does not automatically become a charity upon winding up; it simply ends its corporate existence and does not convert its identity to that of a charitable organization.