Nationwide Insolvency Practitioners
  • Home Page
  • About Us
  • News
  • Contact Us

Call FREE Business Rescue Advice: 03003 038284

Request a consultation
  • Liquidation
    • Company Liquidation
    • What is Creditors’ Voluntary Liquidation (CVL)?
    • Members’ Voluntary Liquidation
    • How Long Does it Take?
    • How Does it Work?
    • How Much Does it Cost?
  • Administration
    • Company Administration
    • Pre-Pack Administration Process
  • CVA
    • Company Voluntary Arrangement
  • HMRC Debts
    • HMRC Arrears
    • HMRC Time-to-Pay Arrangements
  • Winding Up Petitions
    • How Do Winding Up Petitions Work?
    • How to Stop a Winding Up Petition
  • Help Centre
  • Get a Quote
    • Liquidation Quote
    • Administration Quote
    • CVA Quote

Expert Advice 03003 038284

  • Free Advice

Do you need Advice, or want to close your business?

    Your data is secure
    1. Home
    2. News
    3. The risks of trading whilst insolvent

    The risks of trading whilst insolvent

    Employee Smiling Latest News

    Strictly speaking it is not illegal to continue to trade a company which is insolvent. However, there must be a strategy in place which is achievable and returns the company to profitability in the short term.

    Trading whilst insolvent

    Firstly, in this type of situation it is imperative that any decision by a board of directors to continue to trade an insolvent company are fully explained in writing with justification and reasoning. Additionally the directors must be aware that in the event of the company eventually entering a formal insolvency process their actions will be fully scrutinised by the liquidator or administrator and if it is concluded that the rationale was not sound they do face the potential for further action.

    Wrongful Trading

    The most common action against directors in this type of scenario is that of wrongful trading. Wrongful trading occurs when it can be shown that director “knew” or “ought to have concluded” that a company was unable to pay its debts. If Wrongful trading is proven, then the directors can be held liable to pay compensation equivalent to the estimated losses incurred by the company from the point that they “knew” or “ought to have concluded” the insolvency of the company to the point of formal insolvency. Depending on the size of the company and length of time between the two, these losses could be significant.

    Misfeasance and Breach of Duty

    A lesser used method of obtaining financial recompense against the directors is that of Misfeasance or Breach of Duty. In certain circumstances when proof of wrongful trading cannot be obtained, the Misfeasance route can be pursued. Misfeasance is effectively the company suffering financially due to the actions taken by directors and if proven, can also lead to a financial penalty equivalent to the losses incurred by the company as a result of those actions. Overall, if the company is insolvent it is imperative that independent advice is obtained from the company accountant or insolvency experts. This will provide some level of protection for directors if the advice is acted upon and it can limit the potential for personal exposure should the company eventually end up in a formal insolvency situation.

    Contact The Insolvency Experts for advice

    For advice on trading whilst insolvent, or for more information on directors duties and help during the insolvency process, get in touch with The Insolvency Experts. You can talk to us directly for advice on what to do when dealing with insolvency on 0300 303 8284.

    Categories

    • Bankruptcy
    • Business Rescue
    • COVID-19 Advice
    • Debt Advice
    • Frequently Asked Questions
    • Insolvency
    • Latest News
    • Liquidation

    Accreditations

    Chat with us

    Our Costs

    At the Insolvency Experts we think that our service offers excellent value for money. Depending on your circumstances, our services can even end up being effectively free of charge.


    Get a quote
    Get free advice

    © The Insolvency Experts 2017

    The Insolvency Experts is the trading name of Cowgill Holloway LLP registered at Regency House, 45-53 Chorley New Road, Bolton BL1 4QR and registered in England and Wales with registered number OC316195 with offices in Bolton and Manchester.

    Legal

    • Privacy Policy
    • Site Map
    • Terms & Conditions

    Call us now

    03003 038284

    Speak to one of our experts in Company Liquidation today

    A no obligation conversation to help determine the best route forward for you and your business

    0 of 350
    Call Me Back
    x