Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Where directors make a false statement of solvency prior to a member's voluntary liquidation, which of the following have they committed under the relevant legislation?

1. A breach of criminal law with criminal penalties

2. A civil breach subject to fines

3. Fraudulent misrepresentation

4. No legal breach

The correct answer is: A breach of criminal law with criminal penalties

When directors make a false statement of solvency before a member's voluntary liquidation, they have committed a breach of criminal law with criminal penalties. This stems from the fact that a statement of solvency is a formal declaration that the company is able to pay its debts, and making such a statement dishonestly can lead to significant implications under insolvency legislation. In a member's voluntary liquidation, the directors must ensure the statement is accurate, reflecting the true financial situation of the company. If they knowingly make a false statement, this constitutes a serious offense, as it can mislead shareholders and creditors regarding the financial health of the company. The serious nature of this action is taken into account by legislatures, which is why criminal penalties apply, emphasizing that such conduct undermines the integrity of financial reporting and governance. The other options suggest civil breaches or no legal ramifications, which do not align with the gravity of making a false statement of solvency under the relevant legislation. The legal framework surrounding such declarations aims to deter unethical behavior in corporate governance, thereby justifying the stringent consequences that accompany the offense.