2 min read
Definition
Wrongful trading arises under the Insolvency Act 1986 where a director continues to trade past the point at which they knew, or ought reasonably to have concluded, that the company had no realistic prospect of avoiding insolvent liquidation, and fails to minimise losses to creditors.
In plain terms
It's not about fraud — it's about carrying on regardless when you should have stopped or taken advice. The penalty can be a personal contribution to the company's debts, stripping away limited liability.
Why it matters for your company
The defence is acting promptly and taking proper advice once trouble is clear. Knowing your solvency position and cash runway is central. See business debt warning signs.
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