Wrongful trading occurs when directors continue to operate a company and incur debts despite knowing, or having reasonable grounds to believe, that there was no realistic prospect of avoiding insolvent liquidation. In such cases, directors may be held personally liable for losses suffered by creditors from the point they should have ceased trading. During liquidation, the liquidator investigates whether wrongful trading occurred and can pursue directors through the courts. The aim is not to punish honest mistakes but to ensure directors act responsibly and in creditors’ best interests. Keeping proper records, seeking insolvency advice early, and documenting board decisions are essential defenses against wrongful trading claims. If directors can show they took every step possible to minimise losses to creditors, they may avoid liability. Wrongful trading emphasises the importance of acting quickly once insolvency becomes unavoidable.
What is wrongful trading in the context of liquidation?
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