What is wrongful trading and how do directors

2 min read

No prospectThe test

Personal liabilityThe risk

Act earlyThe defence

What it means

Wrongful trading applies when a company goes into insolvent liquidation and a director carried on trading past the point where they ought to have concluded there was no reasonable prospect of avoiding it. Unlike fraud, it does not require dishonesty — just a failure to act when the writing was on the wall. A court can order the director to contribute personally to the company's assets.

How to avoid it

Watch your solvency closely — monthly management accounts give early warning. If the company may be insolvent, take advice from a licensed insolvency practitioner or a free service at once, document every decision, and minimise creditor losses. Borrowing to bridge a genuine, evidenced short-term gap is legitimate; borrowing to delay an inevitable failure is not.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

Is wrongful trading the same as fraudulent trading?

No. Fraudulent trading requires dishonest intent and is a criminal matter. Wrongful trading is about failing to act reasonably once insolvency was foreseeable — no dishonesty is needed for a director to be liable.

What is the single best protection?

Acting early. The moment solvency is in doubt, take professional advice, keep records of your reasoning, and stop incurring debts you cannot reasonably expect to repay. Delay is what creates liability.