Here we’ll examine some of the key differences between wrongful trading and fraudulent trading:
Fraudulent trading is when a company carries on business operations with the intent of purposefully deceiving and defrauding its creditors. This is a criminal offence and is punishable by steep fines/debt liabilities depending on the severity of the fraud and potentially improvement.
Wrongful trading is when a company continues to trade as normal even though the managers/directors were aware (or should have been aware) of the fact that the company was going out of business. This is a civil offence, so directors found guilty of it may be held personally liable for company debts and/or banned from acting as the director of any limited company for a period of up to 15 years.
Although fraudulent trading is a more serious offence, the owners and managers of a struggling company should be just as careful about avoiding accusations of wrongful trading, as the repercussions could be highly detrimental to a person trying to uphold the integrity of their business reputation and finances.
If you’re not sure whether you've breached any laws related to wrongful or fraudulent trading, please see our guide on directors’ duties.
How Are Directors Accused of Wrongful or Fraudulent Trading?
Any company that enters insolvency through a winding up process (i.e- compulsory or voluntary liquidation) will be subject to a thorough investigation conducted by the liquidator. The goal of the investigation is to ascertain whether the directors of the company were guilty of wrongful or fraudulent trading while the company was insolvent. If the liquidator believes the directors did not fulfil their duties while trading insolvent they may present this accusation to the court in the investigation summary.
How to Avoid Wrongful or Fraudulent Trading Accusations
The best way to prevent the possibility of being accused of wrongful trading is to consult with an insolvency practitioner as soon as you feel your company is no longer able to keep up with its financial obligations. Aside from seeking professional assistance expeditiously, here are some tips to help you minimise the risk of being accused of wrongful or fraudulent trading once you've realised your company is trading insolvent:
If you’re concerned that you could be accused of wrongful or fraudulent trading in the near future, call us today on 0800 644 6080, or send us an email to participate in a free consultation. We’ll help you assess your current risk level and devise a plan of action to keep your company’s directors protected from liabilities and legal repercussions.
Real Business Rescue provide director advice online, over the phone, or in-person at one of our 75 UK offices or a place of your convenience.
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