Wrongful Trading Of A Limited Company

Wrongful Trading of a Limited Company is ‘reckless trading‘ and ‘mismanagement‘ of a trading limited company.

Usually, with this management style, the company trades insolvently, due to its directors’ actions.

To trade in this way is, therefore, an offence. However, creditors do retain ways to recover money from directors guilty of this crime. Thus, they knowingly traded irresponsibly without any moral, financial care, towards creditors protection and their potential loss to increase.

INTENT remains the keyword. Usually, however, they do not then intend to clear a debt or demonstrate cavalier regard.

Wrongful Trading of a limited Company – UK Law

Who then Remains Liable?

Laws in the UK then only apply to limited company directors; they may refer to:

• Shadow Directors – A person or persons who then act with power, while not seen, while hiding, but not an appointed director.
• De facto Directors – A person not again named as a director, though makes decisions as a director. 

At this point, it is worth reading ‘Directors Duties & Responsibilities’.

Wrongful Trading Of A limited Company – Insolvency Act 1986 – Section 214

Trading in the UK while a director remains governed by Section 214 of the Insolvency Act 1986. Like fraudulent trading, wrongful trading is when a director of a UK limited company, though conscious of its insolvency, takes no action to lessen the trading loss’s to the company creditors.

Section 214, then details wrongful trading being when a company director (Known as an officer of the company) then permits the company to trade in the knowledge of:

• ‘the company retains no evidence attempting to steer away from insolvency;

• ‘and did not ensure that they, therefore, took every action, to then minimise any trading loss’s to the detriment of the company’s creditors’.

Companies Act 2006 – Section 993

Therefore, the Companies Act 2006 ensures that all parties knowingly carrying on business will remain accountable for their actions while insolvent. If found fraudulent, then potentially exposed to prosecution and a custodial prison sentence and substantive fine.

For further reading, please view ‘Companies Act 2006 explained‘.