Wrongful trading

BHS and the Parliamentary criticism of Phillip Green brings to mind the various pitfalls of owners and Directors in dealing with a company which is falling on hard times.

A distinction between wrongful trading and insolvent trading is an important yet in many ways a subtle one.

Fraudulent trading is itself a criminal offence and leads not only to a Directors disqualification but potential imprisonment under the Insolvency Act.

It is important for Directors and those advising companies to remember that the test for fraudulent activity is that businesses are carried on with the intent and purposely deceiving and defrauding its creditors.

In contract wrongful trading exposes Directors again, to personal liability but in a civil capacity.

Wrongful trading can arise where a company continues to trade as normal even though the Managers were aware (or should have been aware) of the fact that the company was going out of business.

The short point is to seek professional advice at the first hint of red flags in the management information. Our regulatory specialists can assist, call Jeremy Cook on 01924 444555 or email jeremy.cook@ramsdens.co.uk for advice.