Wrongful Trading: What every director should know

By Business Helpline

08 Mar 2023

Blog Article Covers 20

What is Wrongful Trading?

Wrongful trading is a legal term used in the United Kingdom to describe a situation where a company’s directors continue to trade a company while they knew, or ought to have known, that there was no reasonable prospect of the company avoiding insolvent liquidation.

This can occur when a company is in financial distress and the directors continue to trade the company, incurring further debts, instead of taking steps to minimize the potential loss to creditors.

Is wrongful trading misconduct?

Wrongful trading is considered a form of misconduct and can result in personal liability for the directors of the company. Under the Insolvency Act 1986, the court can declare that a director is personally liable for any loss suffered by the company’s creditors as a result of wrongful trading. This means that the director may be required to pay compensation to the creditors out of their own assets.

The test for wrongful trading is whether, at the time the director knew, or ought to have known, that there was no reasonable prospect of the company avoiding insolvent liquidation the director took every step with a view to minimizing the potential loss to the company’s creditors. This includes taking steps to seek professional advice, such as from an insolvency practitioner, and considering whether to appoint an administrator or liquidator.

It is important for directors to be aware of their responsibilities and to take steps to minimize the potential loss to creditors when a company is in financial distress. This includes keeping accurate financial records and seeking professional advice when necessary. It is also important for directors to be aware of the potential personal liability they may face in the event of wrongful trading.

Wrongful trading examples 

  • Taking money from customers when orders can’t be fulfilled.
  • Paying yourself a salary that the company can’t afford.
  • Taking delivery of goods that the company can’t pay for.
  • Amassing high debts to the detriment of creditors.
  • Entering into credit agreements whilst knowing they can’t be honoured.

Is wrongful trading a criminal offence?

Wrongful trading is a civil offence, not a criminal offence. It is a term used in UK insolvency law to describe when a company’s directors continue to trade a company when they know or ought to have known that there is no reasonable prospect of the company avoiding insolvent liquidation.

The directors may be held liable for any losses incurred by the company’s creditors as a result of their actions.

Wrongful Trading Conclusion

Wrongful trading is a serious matter and it is important for directors to be aware of their responsibilities and to take steps to minimize the potential loss to creditors when a company is in financial distress. Failure to do so can result in personal liability for the directors and potentially severe financial consequences.

If you’re worried you may be guilty of wrongful trading the best thing you can do is seek confidential help and advice from us.

Call our expert team on 0800 088 2142

Latest news

1

Three weekly domestic waste collection considered in plans Waste recycling Blackpool

Three weekly domestic waste collection considered in plans

01 Jul 2025

2

Graham Engineering confirms acquisition to a2e Industries Graham Engineering

Graham Engineering confirms acquisition to a2e Industries

01 Jul 2025

3

Training 2000 celebrate 'Good' rating by Ofsted Training 2000

Training 2000 celebrate 'Good' rating by Ofsted

01 Jul 2025

4

Fox Group acquires J Fisher and Sons Colin Fisher, Paul Fox CEO and Gary Fisher.

Fox Group acquires J Fisher and Sons

01 Jul 2025

5

Beever and Struthers strengthen leadership team with new partners Dean Curtis and Joe Diston

Beever and Struthers strengthen leadership team with new partners

01 Jul 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV123 July/August Launch Event
Lancashire Business View magazine launch
Networking
16 Jul 2025

LBV123 July/August Launch Event

Burnley

08:30 - 10:30

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

Chamber Breakfast Networking – July
Chamber Logo1.png.png
LBV Hub Networking
02 Jul 2025 - 02 Jul 2025

Chamber Breakfast Networking – July

St John's Hospice, Slyne Road, Lancaster, LA2 6ST

08:00 - 10:00

The Marketing Metrics that Matter – July 4
LBV Hub Seminars
04 Jul 2025 - 04 Jul 2025

The Marketing Metrics that Matter – July 4

Door4 Office, Burnley Wharf, Burnley, BB11 1JG

08:30 - 11:00

Tri-Site Survey Equipment Showcase
unnamed (2).jpg.jpg
LBV Hub Seminars
09 Jul 2025 - 09 Jul 2025

Tri-Site Survey Equipment Showcase

Crow Wood Hotel, Burnley, BB12 0RT

09:30 - 16:00

Chamber Summer BBQ
LBV Hub Social
17 Jul 2025 - 17 Jul 2025

Chamber Summer BBQ

The Borough, Dalton Square, Lancaster, LA1 1PP

17:30 - 20:00

Preston Tech Connection: Web3 is Dead. Or is It?
July Longer Banner.jpg.jpg
LBV Hub Networking
29 Jul 2025 - 29 Jul 2025

Preston Tech Connection: Web3 is Dead. Or is It?

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 19:30

Preston Freelancer Meet-Up: July
Longer July Banner.jpg.jpg
LBV Hub Networking
31 Jul 2025 - 31 Jul 2025

Preston Freelancer Meet-Up: July

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Cumbria Business Expo 2025
https---cdn.evbuc.com-images-880461633-4862066883-1-original.20241022-110415.jpeg.jpg
LBV Hub Exhibitions
19 Sep 2025 - 19 Sep 2025

Cumbria Business Expo 2025

Carlisle Racecourse, Carlisle, CA2 4TS

09:00 - 15:00

North West Business Expo 2025
https---cdn.evbuc.com-images-880456273-4862066883-1-original.20241022-105445.jpeg.jpg
LBV Hub Exhibitions
24 Oct 2025 - 24 Oct 2025

North West Business Expo 2025

Bolton Stadium Hotel, Bolton, BL6 6SF

09:00 - 15:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV122 Online Graphic
Subscribe now

Weekly news bulletin