What is wrongful trading?
Definition of wrongful trading
Wrongful trading occurs when directors allow a company to keep trading even when they know that the company is unable to pay its debts.
Wrongful trading was introduced into UK law in 1986 as part of the Insolvency Act. This made it an offence for a company director to continue to trade if they knew the business was unable to do so in order to avoid going into liquidation.
Under normal circumstances, a company’s creditors can sue the company’s directors personally for wrongful trading. However, the government temporarily suspended wrongful trading rules for a three-month period starting on 1st March 2020 in response to the coronavirus (Covid-19) crisis.