Wrongful Trading Of A Limited Company
Wrongful Trading of a Limited Company is ‘reckless trading’ and ‘mismanagement’ of a trading company.
Usually, with this style of management therefore, the company trades insolvently, due to the actions of its directors.
To trade in this way is, therefore, remains an offence. However, creditors do retain ways to recover money from directors guilty of this crime. They knowingly traded irresponsibly thus 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 at least 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.
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. Similar therefore to fraudulent trading, wrongful trading is when a director of a UK limited company, though conscious of their company’s insolvency, takes no action too, therefore, 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
The Companies Act 2006, therefore, ensures that all parties knowingly carrying on business, while insolvent, remain accountable for their actions. If found fraudulent, then potentially exposed to prosecution and a custodial prison sentence and substantive fine.