Q&As

Can a claim be made against a company for trading whilst insolvent? If the company is conducting litigation, does this constitute ‘trading’? If so, can a director be held personally liable?

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Published on LexisPSL on 20/05/2015

The following Restructuring & Insolvency Q&A provides comprehensive and up to date legal information covering:

  • Can a claim be made against a company for trading whilst insolvent? If the company is conducting litigation, does this constitute ‘trading’? If so, can a director be held personally liable?
  • Can a claim be made against a company for trading whilst insolvent?
  • Wrongful trading
  • What is the claim?
  • Does litigation constitute trading?
  • What is trading?
  • Who can bring a claim?
  • Are directors liable?

Can a claim be made against a company for trading whilst insolvent? If the company is conducting litigation, does this constitute ‘trading’? If so, can a director be held personally liable?

Can a claim be made against a company for trading whilst insolvent?

Wrongful trading

There are no claims that arise from a company simply ‘trading whilst insolvent’, albeit that is a phrase which is widely used. Instead, what is usually being referred to is a ‘wrongful trading’ claim.

Wrongful trading is a claim which arises under section 214 of the Insolvency Act 1986 (IA 1986) and currently applies only when a company has gone into an 'insolvent liquidation', which is set out in IA 1986, s 214(6) as being when the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up. The important point to note is that a wrongful trading claim can 'only' at present be brought by a company’s liquidator—it is not a claim that a creditor can bring against a company (whether or not that company is subject to insolvency proceedings). It is a claim that is brought against the company’s director(s). When section 117 of the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) comes into force, wrongful trading actions will additionally be able

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