Understand the position
Clear information before you decide what to do next
Understand director duties during insolvency, wrongful trading risk, creditor interests and the importance of documented decisions.
- Creditor interests become the priority
- Avoid worsening the company’s financial position
- Record forecasts, advice and material decisions
Duties continue when the company is insolvent
Directors must protect company assets, treat creditors properly and avoid action that increases losses. Decisions should be based on current information and reviewed as circumstances change.
Wrongful trading is fact specific
Risk can arise where directors knew or ought to have concluded that insolvent liquidation or administration could not reasonably be avoided and failed to take every step required to minimise creditor losses. Specialist advice is needed for any individual assessment.
Good governance matters
Regular board records, cash flow forecasts, professional advice and clear reasons for payments provide evidence of how directors approached the position. Records should reflect real decisions rather than being recreated later.
Practical next steps
What to prepare now
A clearer picture helps the first conversation focus on realistic options.
- Update the financial position frequently
- Record board decisions and supporting evidence
- Review payments, credit and asset disposals
- Take legal and insolvency advice promptly
Common questions
Wrongful Trading and Director Duties FAQs
Is trading while insolvent always wrongful trading?
No. The legal test is more specific and depends on knowledge, prospects and the steps taken to minimise creditor losses.
Can wrongful trading create personal liability?
A court can order a director to contribute to company assets where the statutory test is met.
How can directors show they acted properly?
Contemporaneous accounts, forecasts, board minutes, professional advice and evidence supporting decisions are important.
This page provides general information and is not legal, tax or financial advice. The right action depends on the company’s circumstances. Formal insolvency procedures must be handled by an appropriately authorised professional.
