Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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Which of the following is not a ground for compulsory winding up under the insolvency act 1986?

  1. Inability to secure a loan

  2. The company has not paid a dividend during the last two years

  3. Failure to comply with a statutory demand

  4. Loss of business licenses

The correct answer is: The company has not paid a dividend during the last two years

A company cannot be wound up solely on the ground that it has not paid a dividend during the last two years because this situation does not indicate that the company is unable to pay its debts or is insolvent. The inability to declare or pay dividends can arise from various business circumstances, such as retained earnings or strategic decisions regarding profit distribution. In contrast, the other options relate more directly to issues of solvency or legal compliance that are more severe indicators of a company's financial health or operational status. For instance, failure to comply with a statutory demand is a significant factor that can directly lead to compulsory winding up, as it often indicates that the company is unable to pay its debts. Understanding these grounds is essential for navigating company law and insolvency matters, as they clarify when a company's financial management crosses the threshold requiring legal intervention.

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