Section 214 of the Insolvency Act 1986 (“the Act”) defines wrongful trading as when the directors of a company continue to trade past the point where they knew, or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation.
This action is available to the liquidator of the company against not only directors who are registered at Companies House, but also de facto and shadow directors.
The key step for a liquidator is establishing the date at which it can be shown that the directors continued trading the company despite knowing, or ought to have known that the company was insolvent.
To prove that the directors ought to have known that the company was insolvent there is a two-part test as follows:
Assessing the general knowledge, skill and experience that may be reasonably expected of a person carrying out the same functions as are carried out by that director in relation to the Company; and
The general knowledge, skill and experience that the director has.
Should it be found that the individual has contravened this section of the Act, the court has wide discretion over the contribution that it can require, typically it would be for the amount that creditors have lost since it was found that the company was insolvent.
Do you think that you may be guilty and feel you need wrongful trading advice or at risk of it? Contact us at Debt Solutions Hub today to discuss your options.