Trading while insolvent

Insolvency

Insolvency processes

* Administration
* Bankruptcy
* Chapter 7 (US)
* CVA
* Conservatorship
* Dissolution
* Examinership
* IVA
* Liquidation
* Provisional liquidation
* Receivership

Officials

* Insolvency practitioner
* Tribunal
* Regulatory agency
* Liquidator
* Referee in Bankruptcy
* Trustee in bankruptcy

Claimants

* Creditor
* Preferential creditor
* Secured creditor
* Unsecured creditor

Restructuring

* Administration (UK)
* Chapter 11 (US)
* Cram down
* Restructuring
* Scheme of arrangement

Avoidance regimes

* Fraudulent conveyance
* Undervalue transaction
* Unfair preference
* Voidable floating charge

Offences

* Fraudulent trading
* Misfeasance
* Trading while insolvent
* Wrongful trading

Security

* Floating charge
* Lien
* Mortgage
* Second lien loan
* Security interest

International

* Chapter 15 (US)
* Cross-border insolvency
* Insolvency Regulation
* UNCITRAL Model Law

By country

* Australia
* BVI
* Canada
* Cayman
* China (Hong Kong)
* India
* Ireland
* Russia
* Switzerland
* United Kingdom
* United States

Other

* Anti-deprivation rule
* Bankruptcy alternatives
* Creditors' rights
* Chapter 9 (US)
* Debtor
* Default
* Financial distress
* History of bankruptcy law
* List of bankrupts
* Pari passu
* Pre-packaged insolvency
* Sovereign default
* Subordination

* v
* t
* e

A number of legal systems make provision for companies trading while insolvent to be unlawful in certain circumstances, and provide for directors to become personally liable for a company's debts if they have acted improperly. In most legal systems, the liability in respect of unlawful transactions only extends for a certain period of time prior to the company going into liquidation.

## Contents

* 1 UK law
* 2 Other countries
* 3 See also
* 4 References

## UK law

Under UK insolvency law, trading once a company is legally insolvent can trigger several provisions of the Insolvency Act 1986, including:[1]

* Wrongful trading – Section 214
* Transaction at an undervalue – Section 238
* Preferences – Section 239
* Extortionate credit transactions – Section 244

A limited company becomes insolvent when it can no longer pay its bills when due, or its liabilities—including contingent liabilities such as redundancy payments—outweigh the company’s assets. This is a critical point in the lifespan of a company as it denotes when the directors' responsibilities move from the interests of shareholders to the interests of creditors. It also means that the directors need to be extremely careful when considering whether to continue to trade, or not. Any director who knows that the company is insolvent and makes the decision to continue to trade, and in doing so increases the debts of the company can be made liable for the company debts.[2]

In the UK, directors are exposed in respect of transaction at an undervalue, preferences, and extortionate credit transactions if the transaction occurred: a) while the company was insolvent; and b) within 2 years before the onset of liquidation if the transaction was with a connected person, and 6 months if the transaction was with an unconnected person.

Directors who continue to trade while insolvent may face disqualification under the Company Directors Disqualification Act 1986.[3] Under the provision of this act, when a company goes into liquidation, the liquidator must make a report to the Disqualification Unit of the Department for Business, Innovation and Skills on the conduct of all directors. If the liquidator has come across any conduct which makes the director unfit to be involved in the management of a company in the future (which things would include trading while insolvent) the Department for Business, Innovation and Skills will apply to the Court for an order disqualifying the director or directors from acting as a company director for a certain period of time.

## Other countries

Many other countries have similar laws, often referred to as 'insolvent trading' or wrongful trading.

## See also

* UK company law
* US insolvency law

## References

1. ↑ "Insolvency Act 1986". UK Statutes Crown. http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/legislation/uk/insolvencyact.pdf. Retrieved 29 July 2014.
2. ↑ "Trading whilst insolvent". https://www.companyliquidation.solutions/trading-whilst-insolvent-wrongful-trading/. Retrieved 14 November 2016.
3. ↑ "Company Directors Disqualification Act 1986". Crown. http://www.legislation.gov.uk/ukpga/1986/46/contents. Retrieved 30 July 2014.

0.00

(0 votes)

Original source: https://en.wikipedia.org/wiki/Trading while insolvent. Read more

|

Retrieved from "https://handwiki.org/wiki/index.php?title=Finance:Trading_while_insolvent&oldid=346463"
*[v]: View this template
*[t]: Discuss this template
*[e]: Edit this template