If your business cannot meet its liabilities, it may face insolvency. If you are the director or shareholder of a company facing insolvency, the law can pursue you if your conduct amounts to fraudulent trading. This article will look at what directors and shareholders of companies facing insolvency should know about fraudulent trading so you can limit your liability. <\/p>\n\n\n\n
The law defines insolvency in several ways. Generally, insolvency describes companies that either: <\/p>\n\n\n\n
If your company becomes insolvent, in many cases, a liquidator <\/a>or administrator<\/a> will take over the management of your company. The law gives liquidators and administrators broad powers to review your company\u2019s affairs before insolvency. <\/p>\n\n\n\n Where a liquidator or administrator concludes any person\u2019s conduct amounts to fraudulent conduct carried on for fraudulent purposes, they can apply to court seeking a fraudulent trading order. <\/p>\n\n\n\n If it is a liquidator making the application, you may hear it referred to as a \u201cSection 213 claim\u201d. For administrators seeking a similar order, you may hear it referred to as a \u201cSection 246ZA(1)\u201d claim. This refers to the two sections in the Insolvency Act 1986<\/em> that give rise to fraudulent trading in the context of insolvency.<\/p>\n<\/div>\n\n\n\n The liquidator or administrator must prove on the balance of probabilities that the conduct in question amounted to fraudulent trading. This means the liquidator or administrator must prove that it is more likely than not that the party in question is liable. <\/p>\n\n\n\n Any person can face liability for fraudulent trading concerning a company in liquidation or administration. However, the liquidator or administrator must first prove that:<\/p>\n\n\n\n The law widely defines \u201cfraudulent purposes\u201d. However, a common sense appraisal of the conduct in question is usually sufficient to determine if the conduct is fraudulent. In all cases, the liquidator or administrator must show that the party acted dishonestly.<\/strong> Mere negligence will not mean the person in question was dishonest.<\/p>\n<\/div>\n\n\n\n Directors are more likely than anyone else to face liability for fraudulent trading. This is because directors:<\/p>\n\n\n\n That said, the law can hold anyone liable. This includes shareholders that are not directors. It can also include third parties like accountants and bankers. However, liquidators and administrators have difficulty proving that third parties acted dishonestly. <\/p>\n\n\n\n Conduct likely to amount to fraudulent trading requires dishonesty.<\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nWhat is Fraudulent Trading? <\/h2>\n\n\n\n
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