What is the law on wrongful trading?

The burden of proof with wrongful trading claims is now much lower than it once was. The liquidator will have to show the insolvency court that you acted wrongfully in your role as director. But you will have a chance to show the court that you took all possible steps to avoid liquidation. In these circumstances the help, legal advice and representation of a company and commercial solicitor is vital.

If your company is placed into liquidation, your responsibilities switch from your shareholders to any creditors of your business. The administrator that will handle your liquidation must attempt to allocate assets to pay your business’s creditors. One way they can do this is to prove that wrongful trading has taken place, as if this can be proven, you as a company director could be found personally liable for these debts. It is vitally important to contact a company and commercial solicitor in this situation as the administrator could come after your personal assets, such as your home.

Because the insolvency court has wide discretion in any awards it makes for wrongful trading, you must ensure that your business is operated in full compliance with company law. There is a grey area between when a business is actually insolvent or is just moving through a difficult trading patch, but it is still the duty of all directors to operate their businesses fairly and maintain the duty of care they have towards their shareholders. If you are accused of wrongful trading, you should engage a company and commercial solicitor as soon as possible for legal advice.

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