diff --git a/compiler/src/dotty/tools/dotc/core/Types.scala b/compiler/src/dotty/tools/dotc/core/Types.scala
index e9f5f48eb24b..ea26550fb597 100644
--- a/compiler/src/dotty/tools/dotc/core/Types.scala
+++ b/compiler/src/dotty/tools/dotc/core/Types.scala
@@ -5640,7 +5640,12 @@ object Types {
         case Range(lo, hi) =>
           range(derivedLambdaType(tp)(formals, lo), derivedLambdaType(tp)(formals, hi))
         case _ =>
-          tp.derivedLambdaType(tp.paramNames, formals, restpe)
+          if formals.exists(isRange) then
+            range(
+              derivedLambdaType(tp)(formals.map(upper(_).asInstanceOf[tp.PInfo]), restpe),
+              derivedLambdaType(tp)(formals.map(lower(_).asInstanceOf[tp.PInfo]), restpe))
+          else
+            tp.derivedLambdaType(tp.paramNames, formals, restpe)
       }
 
     protected def reapply(tp: Type): Type = apply(tp)
diff --git a/tests/neg/i12384.scala b/tests/neg/i12384.scala
new file mode 100644
index 000000000000..fef2ce018ee3
--- /dev/null
+++ b/tests/neg/i12384.scala
@@ -0,0 +1,8 @@
+object Nats {
+  trait Fold {
+    trait Nat
+  }
+  type Inc = Fold {
+    type Apply[N <: Nat] = Succ // error
+  }
+}
\ No newline at end of file