What is wrongful trading under UK insolvency law?

Wrongful trading occurs when directors allow their company to continue trading despite knowing, or ought to have known, that there was no reasonable prospect of avoiding insolvency. Under the Insolvency Act 1986, directors must take action to protect creditors once insolvency is apparent. If they continue operating, entering new contracts, or taking on debt without a credible recovery plan, they may be personally liable for the losses creditors suffer after the point insolvency became clear. Courts assess wrongful trading by looking at what a reasonable, diligent director would have done under the same circumstances. For example, failing to maintain proper financial records or ignoring professional advice could be seen as misconduct. The penalties are serious: directors found guilty can be made personally responsible for company debts, disqualified from serving as directors, and in extreme cases, face criminal charges. To protect themselves, directors must act swiftly once insolvency is likely, keeping clear records of decisions and seeking qualified insolvency advice immediately.