Being accused of wrongful trading can be a worry to a director who may have to close their company as punishments can be very harsh and include being made personally liable for company debts.

The government suspended wrongful trading when the pandemic started and that suspension currently runs out at the end of June 2021.

What it really means is that you can’t be accused of wrongful trading by a liquidator if you kept trading throughout the pandemic, even if you thought your company might not survive it.

Having said all this, it’s important you understand what it is.

According to the 1986 Act, wrongful trading is when company directors have continued to trade even though:

“They knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation”

They did not take “every step with a view to minimising the potential loss to the company’s creditors”

If your business is heading for insolvency you as a director must act responsibly and put your creditor’s interests ahead of your own. The liquidator is going to look very closely at how you acted in the time leading up to your insolvency.

Some examples of wrongful trading are:

  • Not submitting up to date accounts
  • Building up large HMRC arrears with no intention to pay them
  • Draining the business account down to zero before you liquidate
  • Repaying money to yourself over other creditors
  • Continuing to take credit from suppliers knowing that you can’t pay it back
  • Taking deposits off customers with no prospect of completing the work

If you are worried about wrongful trading or you have any questions, get in touch with me for some free, independent, and impartial advice.

All the best,
Chris

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