Insights - 21/03/2017

When is a director at risk of wrongful trading?

If you are a director of a business that is facing insolvency, you need to very carefully consider whether you should continue to trade or not. If you do keep trading to the company’s detriment when you know or ought to conclude there is no real prospect of avoiding insolvency, there are serious implications should that business eventually fail. The liquidator (or administrator) can ask a Court to make a director contribute personally to the company’s assets and a person held liable for this may also be the subject of a disqualification order.

It can be the case that a director’s fear of wrongful trading may cause them to consider starting insolvency procedures before they are really necessary, and this premature action can sometimes be as damaging to creditors as waiting until the situation becomes clearer.

Should the financial position of your company become unstable, the best course of action is to seek specialist advice on your legal duties and the financial position of the company at an early stage. A director should also raise the problem with the rest of the board, follow best practice at directors’ meetings, have up to date financial information and then consider whether it is time to cease trading.

If you would like advice or assistance on any of the issues raised in this blog please contact Catherine Fisher, Head of Dispute Resolution. 

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