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Why is wrongful trading relevant?

Published: 29/06/2021 By Andrew Bailey

What is wrongful trading and is it that relevant at the moment? On the latter point it is becoming relevant again after 30 June 2021.
 
Wrongful trading is essentially a potential risk of personal liability for a director if they continue to trade when they know or ought to have known there was no reasonable prospect of avoiding insolvent liquidation. Also, it can be seen that they did not take every step to protect creditors.
 
Many outside the insolvency sector may not be aware but the risk of falling foul of this offence was suspended during the pandemic (or parts of it!) see our blog here . Many commentators suggested that it did not make much difference because directors were still at risk of so many other potential offences if they did not carry out their director duties correctly.
 
For me, I always felt like it was more of a message from the Government that gave directors comfort rather than having much practical benefit. The protection continued to be extended along with everything else whilst the pandemic closed or restricted many businesses.
 
However, it is now important to note that the Government are not extending this protection beyond 30 June 2021 so what message does this send at this point?
 
The Government are saying to directors that normal rules apply. Although the pandemic meant that many businesses were essentially unmanageable, are we now at a point where directors can be judged as normal and that the small burden of responsibility alleviated during the pandemic has been passed back to directors?
 
It does not mean that directors should overreact to this or panic. However, I do believe that directors need to be aware of this change and the message being sent.

If you are a director and are in doubt about any of the points we have raised please get in touch so we can put your mind at rest. Our qualified licensed insolvency practitioners are at the end of the phone ready to have a chat at no cost to yourself.

Call us on 020 8661 7878 or email insolvency@turpinba.co.uk