Wrongful trading red-flag checker
Wrongful trading is when a director keeps trading after they knew, or should have concluded, that there was no reasonable prospect of avoiding insolvent liquidation, and it can make them personally liable to contribute to the company's debts. It does not require dishonesty, and the test is objective (what a reasonably diligent director would have known), so the safe response is to take advice early.
Tick anything that applies
A self-assessment, not a legal determination. Any concern is a reason to take advice promptly.
Source: Insolvency Act 1986, s214.
The red flags courts look at
A handful of warning signs are well recognised: taking customer deposits you may not be able to fulfil, paying favoured creditors while ignoring others, running up new debts with no realistic plan to repay them, and carrying on as normal when the company is already insolvent. The more of these that describe your company, the higher your personal risk.
Common questions
What is wrongful trading?
Wrongful trading, under section 214 of the Insolvency Act 1986, is continuing to trade after the point when you knew, or should have concluded, there was no reasonable prospect of avoiding insolvent liquidation. It can make a director personally liable to contribute to company debts.
How do I protect myself?
Take advice as soon as you realise the company may not survive, document your decisions, stop running up debts you cannot repay, and act to minimise creditor losses. Early professional advice is the strongest protection. See wrongful trading.
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