Legal Advice for Unfair, Wrongful and Fraudulent Trading

Amongst the various statutes which apply to the business world are the Insolvency Act 1986 and the Companies Act 2006. Some provisions do not generate as much attention as others, but can land directors in hot water should they be breached.

  • Wrongful Trading is a civil offence under the Insolvency Act. It stipulates that once the director/s of a company conclude (or shouldhave concluded) that it has no reasonable prospect of avoiding insolvent administration, they must act in a certain way.This involves having a duty to take every step which a ‘reasonably diligent person’ would take to minimise potential losses for the company’s creditors. Should they fail to do so, it is open to a court to order them to make a financial contribution to the company’s assets- and the court can decide how much.
  • Fraudulent Trading is a criminal offence under the Companies Act. If the directors of a company carry on business with an intention to defraud their creditors, or the creditors of someone else, they will be guilty of the offence.If tried by magistrates, the maximum sentence is six months in prison, an unlimited fine, or both. At the Crown Court, this increases to a maximum of ten years’ imprisonment, an unlimited fine, or both.

Of the two, fraudulent trading is more serious in the sense that it can result in a loss of liberty as well as a financial penalty. Reputational damage can be an ancillary, but nonetheless important, side effect.

As always, early intervention is highly important. Our Regulatory team will provide diligent, exact and confidential assistance, and can call upon other experts within the firm as required, including our Litigation and Corporate departments.