Wrongful trading, if proven to the satisfaction of the court, requires the Director to “make such contribution to the company’s assets as the court thinks proper” – Section 214 Insolvency Act 1986.
However, it must first be shown that the Director(s) new or ought to have that that the company had no reasonable prospect of avoiding insolvent liquidation. Furthermore, a Director may be able to show that he took every step with a view to minimising the potential loss creditors, which would be an appropriate defence.
In other words, being insolvent, whether it be balance sheet insolvent or on a cash flow basis, doesn’t necessarily result in wrongful trading, as the Director(s) may genuinely be of the belief that the company can trade out of the insolvent position. Historic case law has shown that attaining ongoing professional advice again adds weight to the Director(s) defence.
T H Financial Recovery we work with and advise businesses and Directors in financial difficulty.
Give us a call to arrange a FREE, no obligation consultation. We handle both informal and formal insolvency work, including:
Business Assessment and Restructuring, New Funding Options, Creditor negotiation and time to pay arrangements, Company and Individual Voluntary Arrangements (CVAs & IVAs), Administration, Liquidation, Bankruptcy.
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