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Directors Beware Trading on an Insolvent Company

The Implications of liquidation on company directors


A director needs to be mindful that he/she does not continue to trade a business on when there is no prospect of it trading out of its financial difficulties. If a director does continue the business too long and it goes into liquidation, the director could be found guilty of Wrongful Trading.


Wrongful trading is a provision under the Insolvency Act 1986 where a director of an insolvent company can be made to contribute to the losses of the business from his/her personal funds. It is also grounds for disqualification proceedings.


The key with wrongful trading is “did the director act reasonably” If a director, once realising that the company could not continue trading took steps to close the business down and put it into liquidation, then, this will help mitigate the prospect of wrongful trading. Timing is important and if the director acted reasonably and also in a timely manner, this will also help mitigate any action.


Where a director really should have known that the company could not continue, however, no action was taken to bring the company to an end and the position of creditors worsened, then a director may find that he/she is guilty of wrongful trading. An example may be where a director receives the company’s annual accounts showing it made a loss and that the liabilities exceeded the assets of the company. If the director continues to trade this business and the liability to creditors increases, this could be grounds for wrongful trading. Of course, it is not always that black and white and advice can be taken from an insolvency practitioner or insolvency solicitor at any time.


The Timothy James Partnership works to help businesses in financial difficulty and we can advise you on how to deal with situations which may put your business at risk of insolvency.

Added: 19 Jan 2017 18:16

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Insolvency Practitioners Association
About Us

We are an independent firm of specialist Licensed Insolvency Practitioners located in Bromsgrove, Worcestershire.

At The Timothy James Partnership, we work very closely with local businesses and professionals, providing guidance on formal insolvency procedures and advice on restructuring businesses.

We recognise that at times, companies find themselves in difficult financial circumstances and our aim is to provide practical solutions in these situations.