Should I continue to trade?

If you’re concerned about your company’s viability, you may need to consider whether continuing to trade is the right thing to do. There are significant potential risks to continuing to trade if the Company’s future is uncertain.

Wrongful Trading 

Wrongful Trading legislation deals with a situation where a company continues to trade past the point when the directors should have known it was insolvent and would ultimately need to go into liquidation or administration.

In this scenario the directors can be sued by the liquidator or administrators and could be ordered by a court to repay the company the amount of additional losses that were incurred after they should have ceased to trade.

Wrongful trading is not straightforward to prove, a Liquidator or Administrator must prove that:

  1. The company was insolvent on a given date and formal insolvency was unavoidable
  2. The directors should have recognised the company was insolvent and ceased trading
  3. The loss to creditors worsened after the point when trading should have stopped

This isn’t always straightforward, but the potential consequences can be very serious.

If you’re concerned about the risk of wrongful trading, we can make an independent assessment of the situation and advise you on the best course of action. Often, even though a company may be experiencing financial pressures, the directors can make a good case that things are likely to improve and continuing to trade is reasonable. If this is the case it is vital to document your decisions properly and record your reasoning. Being able to demonstrate you have taken professional advice is very helpful in doing this.

How we can help? 

If you’re uncertain about whether the company is viable we can explore ways to resolve your financial issues: we can help you bring about a turnaround by raising finance, negotiating breathing space with creditors or even considering a formal protection mechanism such as a CVA, so that creditors won’t take action against you whilst you’re making the changes you need to return to profit.

But it isn’t always possible to rescue a company. Where this appears to be the case we can advise you on how to mitigate your personal risk by arranging for the company to be wound up quickly and efficiently so that creditors do not suffer undue losses. Opting to close a company is a very serious step but sometimes it is simply the right thing to do; once the decision is taken it can also be a significant relief stressed directors.

Whatever your situation, if you are uncertain about continuing to trade contact us to see how we can help. We’ll talk you through your options on a no-obligations basis and try to help you solve the problem.

Oliver Collinge

Director Leeds

t: +44(0)1134 267 405


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