Wrongful Trading

The 1986 Insolvency Act says that directors of insolvent companies should be aware that from the time they know or should have known that the company is insolvent, any increase in liabilities is potentially payable by the director.

A director guilty of Wrongful Trading may be disqualified from being a company director for up to 15-years. 

Avoiding wrongful trading is simple; be aware of your company’s cash and creditor position and take advice as soon as you suspect that things are not going to plan!

It can be difficult to keep on top of your business’s cash flow, however there are many red flags which a responsible director should look out for. For example, not being able to pay suppliers within the agreed credit terms and building up an increasing mountain of debt.

A responsible director would also be aware of keeping up with wage and salary payments to staff as well as ensuring that National Insurance is paid on time.

If concerned at all about the solvency of your business, seek professional advice as you may be able to remedy the situation before it becomes a major problem. 

To avoid being accused of wrongful trading, you need to realign your company operation to best serve the interests of creditors. If you need to take a pay cut, then do this! In actuality, if there’s any way you can reduce personal gain from the business even for the short term, then this could help balance the books. 

When insolvency practitioners build a claim against you as a director, they will need to prove your  incompetence as a company director, and that financial losses have become insurmountable. If it’s clear the director was aware of the very moment they knew administration or liquidation was unavoidable and didn’t choose to act, then this will also be held against them. 

For impartial advice about insolvency procedures, simply contact RG Insolvency today and a member or our highly experienced team will be able to explain key information in much greater depth.