Wrongful Trading Section 214 of the Insolvency act 1986

Wrongful Trading Section 214 of the Insolvency act 1986

This article looks at other antecedent transactions which can be pursued by a Liquidator. Wrongful trading is a claim which can be pursued by the Liquidator where it is apparent that the Directors of the Company allowed it to trade for a longer period of time, than necessary at the expense of its creditors.

The main question asked to the Directors is “Whether the Directors knew or ought to have concluded that there is no prospect of the company avoiding an insolvency process?”.

If such a claim is successful then the Director and in some cases a shadow Director, can face having to make personal contributions in relation to those debts suffered by the company. The Court has a wider discretion in these circumstances.

The Directors would need to show that they acted in the best interest of the Company and that stringent steps were taken to avoid losses being incurred to the Creditors. In some cases, the matter could also be referred to The Insolvency Service criminal enforcement team where it is suspected that there has been criminal behaviour.

Some of the warning signs to look out for with Directors who may be trading wrongfully would be:-

• Time to pay arrangements with HMRC
• County Court judgements
• Unable to pay the company debts as and when they fall due
• Breaking the terms of the bank overdraft facility
• Bounced cheques (although cheque payments are very rare)
• Adverse credit ratings

If upon successful legal proceedings it is found that the Directors have been trading with the intention to defraud creditors, then the Liquidator can make a request to the Court to declare that the director is unfit and guilty of trading in this way. The other side to wrongful trading is that of Directors found to be fraudulently trading. There is further information under fraudulent trading on the website.

Conclusion

If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.

This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.