Question

meaning fraudulent trading and wrongful trading? and the actions against of them?

Answer 1

If creditors take legal action against the company and you face voluntary or involuntary liquidation, during the liquidation process the actions as a director will be subject to scrutiny. Fraudulent trading allegations are extremely serious, and the ramifications include a jail sentence, disqualification of the director and/or financial penalties. Insolvency Lawyer concerned with the liquidation is obligated to give the Secretary of State a report on the actions of directors leading to insolvency of the company. If dishonest trading is alleged as opposed to unethical trade, it means that directors have been deemed to behave to intentionally prevent payment of liability to the company

Continuing in company, whether it means accepting credit lines from vendors, or taking credit payments from consumers knowing that the orders will not be met, and attempting to increase the sum of money that comes in before liquidation, is a serious offence.The investigating Insolvency Practitioner could also look with suspicion at selling company assets at a price less than market value during the time leading up to the liquidation.However, the intention to defraud creditors in this way must be proven, and the Insolvency Service will conduct a thorough investigation in an attempt to attain the truth.

Managers have an duty to warn shareholders of the company when an insolvent condition is reached and to obtain advice from a qualified insolvency practitioner. While directors may have carried on trade with good intentions to eventually lead the company out of trouble, they have a responsibility to put the interests of shareholders first when insolvency occurs and to restrict the exposure of shareholders to additional debt. In certain cases this would mean that the company will stop trading immediately, although there are certain exceptions to that, such as if the company is in the middle of a lucrative deal that would bring more revenue to the company than it would cost to complete.

The laws governing this are nuanced and confusing, and it is important to take competent insolvency advice.If it is found that you have displayed priority over others over one or two creditors, you might be faced with concerns about your motives. The interests of creditors as a whole, rather than individual creditors, should be at the forefront of directors actions.