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“I know what I have given you... I do not know what you have received.” ― Antonio Porchia
Wrongful Trading is ‘reckless trading’ and mismanagement of an insolvent company in the UK.
To trade in this way is an offence. Therefore creditors have a way to recover money from directors. Who knowingly traded irresponsibly without any moral, financial care, towards creditors protection and their potential loss to increase. INTENT is the keyword as; usually, they do not intend to clear a debt or at least demonstrate cavalier regard.
Who is Liable?
Laws only apply to limited company directors; they may refer to:
- Shadow Directors – Are a person or persons who act with power, while not seen while hiding, but not an appointed director.
- De facto directors – A person not again appointed as a director, though makes decisions as if a director. They additionally are considered by directors of the company, to be a director.
Trading in the UK while a director is governed by Section 214 of the Insolvency Act 1986. Similar to fraudulent Trading, wrongful Trading is when a director of a UK limited company and conscious of their company’s insolvency though takes no action to lessen the trading loss’s to the company creditors.
Section 214, details wrongful trading being when a company director (Known as an officer of the company) permits the company to trade in the knowledge of:
• ‘the company has no evidence steering away from insolvency;
• ‘and did not ensure they took every action to minimise any trading loss’s to the detriment of the company’s creditors’.
The Companies Act 2006 ensures that all parties are knowingly carrying on business while insolvent remain accountable for their actions. If found to be fraudulent, then they are potentially exposed to prosecution and a possible custodial prison sentence and a substantive fine.