Wrongful Trading

Wrongful trading occurs where directors allow a company to continue trading when it is insolvent and they knew or ought to have known the business is insolvent. Wrongful trading is also often described as insolvent trading.

Ordinarily, a director's primary duty is to act in the best interests of the company and its shareholders. When a director suspects or knows or ought to know that a company is insolvent, this duty shifts and they must then prioritise the interests of the company's creditors. This duty arises both from common law and the Insolvency Act 1986.

The definition of wrongful trading under the Insolvency Act makes clear that factors such as the skill and experience of a specific director will be part of any assessment as to whether trading when insolvent has occurred. The risk for company directors is that, on insolvency, an appointed liquidator is duty bound to consider the conduct of directors in the lead up to insolvency.

Where wrongful trading is established directors may be personally liable to cover some of the company's debts.

How we can help

Our lawyers are specialists in insolvency and in defending company directors. Our experience is not just in knowing the law, we have dealt with many situations where a negotiated outcome is the end result and we understand and have experience of the likely approach taken by Insolvency Practitioners and the Insolvency Service.

We can assist you with:

Taking preventative measures - identifying potential signs of insolvency and taking proactive steps to mitigate the risk of wrongful trading.

Director Duties - understanding your duties as a director and ensuring compliance with the Insolvency Act 1986.

Insolvency options which may reduce risk - such as voluntary liquidation.

Defending you - representing you if you are accused of wrongful trading.

Defending allegations of wrongful trading

To successfully defend allegations you will need to show that you have acted in good faith. Some of the factors will which will likely be relevant will include :-

• If the company's financial position deteriorated rapidly

• Whether you can demonstrate that you were carefully monitoring the company's financial situation in the lead up to insolvency

• Whether, when it was possible or likely that the company might be insolvent, you sought advice form accountants and lawyers.

• Whether you kept in contact with your creditors, told them what was going on and did not prefer one creditor over others.

• Whether there is any evidence that you continued trading in order to not make your personal position worse because you have given a personal guarantee for some of the company's debts or have an outstanding director loan from the company to you.

Our experienced and specialist lawyers would be happy to talk you if you are concerned about wrongful trading. Please do get in contact.