Publisher Theme
I’m a gamer, always have been.

Wrongful Trading – An Overview

Being in business is not really an easy task and there is many times, situations where one falls into debts and look for business debt solutions.

Wrongful trading refers to a situation in which an insolvent company is allowed to keep trading. The reasonable expectation is that a responsible and diligent person would prevent such activity from taking place given the company’s financial situation.  Directors who are aware that insolvency is unavoidable and still let activities take place are usually held liable for paying creditors when a company is liquidated. To discover more about the options available when a corporation is bankrupt, visit this website:

How To Determine Insolvency:

A company’s financial solvency situation can be determined by the following:

  • cash flow: if it is not able to pay its due bills
  • balance sheet: if liabilities are more than assets
  • NB: when there is pending legal action against the company

If it is determined that a company has to be liquidated, concerned officials will conduct investigations to check what the actual situation is.  If there is evidence of wrongful trading activity in spite of being insolvent but not yet wound up, directors can be charged.

The act of borrowing money or even racking up debt can lead to directors being charged and made liable for the amount due.  Officials will also take a good look at VAT and PAYE transactions.

What To Do When A Company Is Guilty Of Wrongful Trading:

If a liquidator finds that a company is trading irresponsibly, they will put it in a report and present it to the relevant authority.  It is a civil offence for companies to participate in such trading and the consequences are severe.  Monetary refunds, fines and jail sentences of up to 15 years can be imposed on company directors and responsible employees.

How To Avoid Wrongful Trading:

  • Companies and officials should keep strict records of financial transactions all the way through.  This information should contain figures on projected income and debt.  This is a way to prevent future problems and also indicate lack of wrong doing.
  • One should consult insolvency professionals outside the company for assistance.
  • Regular analysis of company’s books will give an indication if things are on the mend or getting worse.  If there is no way to clear debt in a reasonable time period, trading should cease immediately.  Consulting an insolvency specialist for advice is the next course of action.
  • Maintain a file of all actions taken during this period along with reasons for why it was done.  This will help with investigations.
  • It is a good idea to have business plans in place to check whether things are working according to plan. These help in evaluating finances and also to make good decisions to grow a business.
  • If a company is insolvent and creditors have to be paid, then there should be no discrimination while paying creditors off.

What If A Director Resigns Before The Liquidation Process Is Put Into Action?

If a person resigns when the company was insolvent but before liquidation starts, they can still be held liable.  Liquidators are charged with the responsibility of looking into the roles of each person and assigning responsibility. To discover more about the responsibilities of a liquidator, visit this website:  

Leave A Reply