{"id":997,"date":"2021-12-29T01:43:53","date_gmt":"2021-12-29T01:43:53","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=997"},"modified":"2026-03-17T05:42:29","modified_gmt":"2026-03-17T05:42:29","slug":"company-trade-whilst-insolvent","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/company-trade-whilst-insolvent\/","title":{"rendered":"Can a Company Trade While Insolvent in England?"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">As a company director, you may find your business facing financial difficulties. You might think your company <\/span>is unable<span style=\"font-weight: 400\">to meet its current liabilities in the near future, or you predict that your company cannot meet its liabilities. It can be challenging to know at what point you should stop trading. To help, this article will first explain some key terms before explaining when you must quit trading, as well as the risks of continuing to trade while insolvent. It will also briefly explain the insolvency procedure you will need to initiate.\u00a0<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">This article does not consider the temporary measures given to companies facing financial difficulty under various UK coronavirus laws.<\/span><\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Terms Explained&nbsp;<\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Insolvency&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Insolvency is defined in one of two ways. Either your company:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">is <a href=\"https:\/\/legalvision.co.uk\/disputes-litigation\/my-business-cannot-pay-its-debts-what-are-my-options\/\">unable to pay debts<\/a><\/span> <span style=\"font-weight: 400\">\u2014 such as when one of your company\u2019s creditors has served your company with a \u201cstatutory demand\u201d (a formal request to settle your company\u2019s debts) and you have not taken the appropriate steps within 21 days; or<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">your company fails the cash flow and balance sheet insolvency test \u2014 where, given all the circumstances, your assets cannot reasonably cover your liabilities, including future liabilities.<\/span><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Liquidation vs Administration&nbsp;<\/span><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Liquidation<\/span><\/h4>\n\n\n\n<p>The process of l<span style=\"font-weight: 400\">iquidation<\/span>,<span style=\"font-weight: 400\"> also called \u201c<a href=\"https:\/\/legalvision.co.uk\/corporations\/winding-up\/\">winding up<\/a>\u201d, is the nuclear option. This is where either the court or the company itself appoints a liquidator to sell off the company&#8217;s assets to pay the creditors in the order of priority. Afterwards, the company ceases to exist.&nbsp;<\/span><\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Administration<\/span><\/h4>\n\n\n\n<p><span style=\"font-weight: 400\">Administration is another main rescue proceeding. The aim is to ensure that either:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">the company itself can continue \u201cas a going concern\u201d (i.e. come out the other side and continue to meet its financial obligations); or, if that is not possible,\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">coordinate with the creditors to reach a resolution that meets their objectives by selling off the company\u2019s assets.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">It is an alternative to liquidation.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Insolvency Practitioners&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Liquidators and Administrators will be a qualified insolvency practitioner. They are a specially appointed professional who assumes control of the company\u2019s assets. Either the company, the court, or certain creditors can appoint the liquidator\/administrator.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The job of this professional is to ensure creditors receive payment according to insolvency rules. In general, this gives secured creditors the first rights of repayment after a company\u2019s assets have been sold. Secured creditors are those that have the rights to sell your company\u2019s assets to pay off its debts.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">The <\/span><i><span style=\"font-weight: 400\">Insolvency Act 1986<\/span><\/i><span style=\"font-weight: 400\"> sets out most of the rules for insolvency proceedings.<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Other Rescue Proceedings<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">You should note that administration is only available for companies that are actually insolvent (with one exception that is beyond the scope of this article). There are other rescue proceedings available to companies before they are insolvent. Many of these alternatives allow company directors themselves to initiate and manage these proceedings.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Importantly, it is vital to seek advice as soon as you think your company is facing financial difficulties. Indeed, there are processes available to rescue companies in difficulty before you need to wind yours up.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">When Must My Company Quit Trading?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">The short answer is that you should seek advice when you think your company is in financial difficulty.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The law surrounding insolvency and <a href=\"https:\/\/legalvision.co.uk\/corporations\/restructure-company\/\">restructuring<\/a><\/span> <span style=\"font-weight: 400\">is complex and highly fact-dependent. This makes it difficult to generalise. However, insolvency practitioners and lawyers specialising in insolvency and restructuring can review your financial accounts and essential contracts to determine if you can continue trading.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">As a company director, you can permit your business to continue trading, even if you recognise it is facing difficulty. However, be aware of the consequences surrounding this decision. <\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">For example, it may be the case that your company is placed into administration, and the administrator concludes that you either knew or should have known that the company would be insolvent. If so, you could be held liable, either for wrongful trading or fraudulent trading.<\/span><\/p>\n<\/div>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+448081968584\" class=\"not-prose\">0808 196 8584<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one business day.\n                    <\/span>\n    <\/div>\n\n    \n\n<div class=\"not-prose flex justify-center text-left gform_input_bg_white    \">\n    <script>\nvar 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By doing so, you can avoid director disqualification or liability for a civil offence or a criminal offence.&nbsp;<\/p>\n\n\n\n<p>For example, your company could take steps such as trying:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>a company voluntary arrangement;<\/li>\n\n\n\n<li>administration;<\/li>\n\n\n\n<li>a creditors voluntary arrangement; and<\/li>\n\n\n\n<li>time to pay arrangements.<\/li>\n<\/ul>\n\n\n\n<p>On top of this, it is also usually a good idea to seek advice from an insolvency specialist. An insolvency specialist is likely to tell you to avoid certain actions, such as:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>using company money to fund personal expenses;<\/li>\n\n\n\n<li>paying yourself an unreasonably high salary;<\/li>\n\n\n\n<li>trying to exclude certain company assets from an insolvency calculation.<\/li>\n<\/ul>\n\n\n\n<p>As a result, if your company is insolvent or on the verge of insolvency, it is a good idea to not trade for the profit of your business. This is because your primary obligation will be to the creditors of your business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Liabilities When Continuing to Trade&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Note that you can be liable for wrongful trading if the liquidator\/administrator concludes that either:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">you actually knew the company was facing insolvency; or\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">you <\/span><i><span style=\"font-weight: 400\">should have known <\/span><\/i><span style=\"font-weight: 400\">the company was at risk of insolvency.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">Therefore, you could be liable without actually knowing that the company was in difficulty. Importantly, the law will hold you to the objective standard of a reasonably competent company director.&nbsp;If the court reaches this conclusion, the administrator\/liquidator may seek a declaration that you must contribute personally to the company&#8217;s assets to repay the company\u2019s creditors.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Likewise, if the court grants such an order, you will be personally liable for some of the company&#8217;s debts on the basis that you breached your duties as a director.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Finally, if you are found liable for wrongful trading, you can receive a disqualification from being a director for up to 15 years from the date of the order.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Fraudulent Trading&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">In essence, fraudulent trading is where directors (and certain other third parties) act in a way that constitutes wrongful trading. Notably, there is an additional element of intending to mislead or defraud its creditors.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--warning box--icon\">\n<p><span style=\"font-weight: 400\">Fraudulent trading is a crime. Therefore, in addition to facing the same liabilities as for wrongful trading, you can receive imprisonment for up to 10 years.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Protecting Yourself as a Director<\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Seek Advice<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">The law imposes severe liabilities on directors when continuing to trade despite being at risk of insolvency.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">As such, the best thing to do is seek advice as soon as you think your company is at risk. You can minimise reputational damage to your company and yourself, as well as ensure you will not be held personally liable for your company&#8217;s debts in the event of its insolvency.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Manage Accounts&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">You should always know your company&#8217;s financial position, including at what point your company&#8217;s obligations to its creditors are due. This will help you stay on top of your obligations and ensure you can see any risk of financial difficulty well in advance.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Understand the Terms of All Loans<\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">When you take out loans, the terms of the loan may contain certain covenants. Covenants are obligations on your company not to do certain things like borrowing more money. Covenants can also be positive. This means that you must do something, like make your accounts available to your lenders.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Lenders can initiate insolvency or restructuring proceedings if you breach your covenants. Therefore, know what the covenants say and abide by them.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Properly Record Directors&#8217; Meetings<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Though you should always try and take adequate minutes of your board meetings, if your company is in financial peril, it is vital that you record the decisions that you and the other directors are making.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Continuing to trade under the suspicion that your company may be insolvent carries substantial financial and reputational risk. Therefore, it is vital to seek advice from the moment that you feel your company may be in financial difficulty. If your company is held liable for continuing to trade while insolvent, you may have to repay your company\u2019s creditors personally. Likewise, you may receive a disqualification from being a director in the future.\u00a0<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you need help navigating your company\u2019s financial difficulty, our <\/span><a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\"><span style=\"font-weight: 400\">experienced corporate lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1640741525637\"><strong class=\"schema-faq-question\"><strong>Can a company trade while insolvent?<\/strong><\/strong> <p class=\"schema-faq-answer\">In some circumstances, yes, a company can trade while insolvent. But as a director, you assume substantial risk for continuing to trade without seeking expert advice from an insolvency practitioner or lawyer.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1640741536395\"><strong class=\"schema-faq-question\"><strong>I am worried my company may not be able to pay all its debts. Should I keep trading?<\/strong><\/strong> <p class=\"schema-faq-answer\">You should seek immediate advice the moment you realise your company may not be able to meet all of its liabilities. An expert can advise you on if you can continue to trade or not.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"488c9024c8\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/997\" \/>            <input value=\"https:\/\/legalvision.co.uk\/corporations\/company-trade-whilst-insolvent\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Can a Company Trade While Insolvent in England?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>As a company director, you may find your business facing financial difficulties. You might think your company is unableto meet its current liabilities in the near future, or you predict that your company cannot meet its liabilities. It can be challenging to know at what point you should stop trading. To help, this article will<a href=\"https:\/\/legalvision.co.uk\/corporations\/company-trade-whilst-insolvent\/\">Continue reading <span class=\"sr-only\">&#8220;Can a Company Trade While Insolvent in England?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":578,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1596,2502,1829,1454,2350,2376","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28],"tags":[89,121,122,123,124,125],"class_list":["post-997","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-corporation","tag-fraudulent-trading","tag-liquidation","tag-administration","tag-trading-whilst-insolvent","tag-insolvency"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Can a Company Trade While Insolvent? | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Continuing to trade while your company is insolvent carries financial and reputational risk. 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