Wrongful trading claims under sections 214 and 246ZB of the Insolvency Act 1986

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Wrongful trading claims under sections 214 and 246ZB of the Insolvency Act 1986
  • What is wrongful trading?
  • Who can commence a wrongful trading claim, and against who?
  • What needs to be established to bring a successful wrongful trading claim?
  • How is the claim brought and what needs to be set out?
  • Relief the court will grant on a successful wrongful trading application
  • Temporary changes to wrongful trading under the Corporate Insolvency and Governance Act 2020

Wrongful trading claims under sections 214 and 246ZB of the Insolvency Act 1986

What is wrongful trading?

Wrongful trading is a claim which arises under sections 214 (liquidation) and 246ZB (administration) of the Insolvency Act 1986 (IA 1986) and applies when a company (or an LLP) has gone into an insolvent liquidation or administration, which is when the company goes into liquidation or administration at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up or administration.

The essence of a wrongful trading claim is that:

  1. at some time before the commencement of the company's liquidation or administration, its director knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation or administration (this point is sometimes known as the 'insolvency point')

  2. from the insolvency point, the director failed to take every step with a view to minimising the further potential loss to the company's assets/creditors

Despite IA 1986, ss 214 and 246ZB both being entitled 'wrongful trading', there is no requirement to show that the company actually traded, nor is the word 'trading' referred to in the wording of IA 1986, ss 214 or 246ZB. In practice, wrongful trading claims can be founded on a number of circumstances, including trading, actions, and omissions taken by the director.

Related documents:

Popular documents