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.

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.

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.

Personal liability for directors

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

Key risks and warning signs

Directors should seek advice if they face:

• Mounting creditor pressure

• HMRC arrears

• Rejected credit applications

• Suppliers demanding payment upfront

• Cash flow problems

• Declining revenue

• Loss of major customers

• Being unable to pay staff

How we can help

Our lawyers are specialists in insolvency and in defending company directors. 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.

If you're concerned about wrongful trading issues, contact our specialist team for a confidential discussion. Early advice is crucial - the sooner you act, the more options you'll have.