Directors Wrongful Trading

Worried About Accusations of Directors' Wrongful Trading?

Directors' wrongful trading is an aspect of UK insolvency law and was introduced to enable contributions to be obtained for the benefit of creditors from those responsible for any perceived mismanagement of an insolvent business.

It was introduced in the Insolvency Act 1986 as an addition to the idea of fraudulent trading of directors. Wrongful trading, however, is a less serious and more common offence than fraudulent trading. It is still, nevertheless, a financially punitive tool which creditors may use to the financial harm of company directors who are deemed to be responsible for a company's failure.

The part of the Insolvency Act 1986 which deals with directors' wrongful trading, Section 214, is very broad, since it applies not only to de jure directors (directors who were formally appointed and whose appointment was registered with Companies House). It can also apply to de facto directors (people who assume the role of director of a company without actually being appointed), or shadow directors (people in accordance with whose direction the de jure directors will have been accustomed to act).

There was quite a lot of uncertainty among banks and insolvency professionals who assisted companies which were in trouble that they may be caught by the directors' wrongful trading provisions. However, a defence against this could always be mounted based on showing that the directors' intentions were in good faith and that they took action to prevent adverse company fortunes.

So, for example, a Company Voluntary Arrangement or similar action is therefore a reasonable defence against the charge of directors' wrongful trading, though not an absolute one. As always, it is best to seek professional advise if in doubt.

If you would like to talk about directors' wrongful trading, and its implications for your company, to a specialist with 17 years corporate insolvency experience then enter your details into the web form below for a no-obligation chat.

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