In times of economic uncertainty and recession, the detection of fraudulent trading and wrongful trading generally tends to increase.

Our team of insolvency lawyers is experienced in both bringing and defending actions for wrongful trading as well as defending criminal allegations of fraudulent trading.

For an initial no obligation discussion, please call our Insolvency Team at any of our offices detailed below:

In this article, Hamraj Kang of Kangs Solicitors discusses the issues of criminal and civil liability associated with fraudulent trading and wrongful trading.

Duties of a Company Director | Director Disqualification Solicitors

A company director is obliged to discharge his fiduciary duties as a director.

The director not only owes a duty to the shareholders (even if the director and shareholder is one and the same person) but also a duty to other parties to ensure that the company does not trade wrongfully or fraudulently. 

Other parties include a whole range of entities that the company interacts with such as sub-contractors, manufacturers, suppliers, distributors etc.

Where a director fails to discharge his duties, the Secretary of State can institute ‘Director Disqualification Proceedings’.

Fraudulent Trading | Kangs Criminal Defence Solicitors

Fraudulent Trading is:

  • where the company is technically insolvent, and
    • despite the obligations to take the steps to notify and/or protect creditors, the business continues to trade,
    • knowing that the company is unable to settle any of those trading invoices, and
    • has no prospect of ever being in a position to settle the invoices.
  • often characterised by the insolvent business receiving goods, selling them on and retaining the proceeds without ever paying the supplier for them.
  • a criminal offence with conviction resulting in a custodial sentence of up to ten years.
  • often prosecuted with a view to seeking a Director Disqualification Order in the criminal courts.

Fraudulent Trading Defence Solicitors | Kangs Solicitors

Our team of criminal fraud defence solicitors is rated as one of the best in the country.

We are ranked at the very top by the two leading directories for the legal profession. We are ranked in Tier 1 by the Legal 500 and Band 1 by Chambers & Partners for our work in areas of fraud and white-collar defence.

Our team is led by Hamraj Kang, an award-winning solicitor and the current winner of the Legal 500 ‘Criminal & Fraud Individual Solicitor of the Year’.

Wrongful Trading | Kangs Insolvency Solicitors

A change to the Insolvency Act 1986 permitted the concept of wrongful trading to be added to the notion of fraudulent trading.

Wrongful trading is:

  • where a company continues, ostensibly, to trade normally where its directors know (or where there is good reason to know) that the company will go out of business and there is no genuine way of ‘trading through’
  • what is often known as ‘trading irresponsibly’
  • far more prevalent than fraudulent trading
  • not a criminal offence
  • often done without intention.

A Civil Offence | Wrongful Trading

Wrongful trading is a civil offence under Section 214 Insolvency Act 1986, and occurs when:

  • The company directors knew (or there was good reason for them to have known) that there was no reasonable prospect of avoiding insolvent liquidation; or
  • The company directors did not take every reasonable step with a view to minimising the potential loss to the company’s creditors.

Consequences | Penalties | Wrongful Trading

Where a liquidator considers that an action for wrongful trading should be brought, the liquidator can take certain steps:

  • Personal Liability

The liquidator is able to pierce the ‘corporate veil’ and take action to recover the company deficit from the personal assets of the (former) company directors. This recovery may be ‘set’ at the point that the company became insolvent.

Dependent upon the circumstances associated with the company’s insolvency, the liquidator may also request Disqualification Proceedings be issued against the company director.

Such request requires an application to the Secretary of State for Business, Energy and Industrial Strategy. If granted, dependent on the severity of the wrongful trading, the disqualification may range from two to fifteen years.

How Can We Help? | Kangs Insolvency Solicitors

In order to try and obviate any such claims or criminal prosecutions being brought against you, it is imperative to take specialist advice from qualified people.

We work closely with Insolvency Practitioners and would be delighted to assist.

If you require any assistance please do not hesitate to contact any of our Team:

Hamraj Kang | Head of Financial Crime & Fraud
07976 258 171 | 020 7936 6396 | 0121 449 9888

Stuart Southall | Head of Insolvency Team
0121 449 9888 | 020 7936 6396

Tim Thompson
020 7936 6396 | 0121 449 9888

Naz Maqsoom
0121 449 9888 | 020 7936 6396