Fraudulent and Wrongful Trading Flashcards
What is fraudulent trading?
Business that is carried on with the intention to defraud. Could be criminal or civil. High burden of proof required.
What is wrongful trading?
A company has not taken sufficient steps to minimise the loss to creditors despite knowing that they were headed towards an unavoidable insolvency.
Who is liable in fraudulent trading?
Any party who knowingly got involved and carried on the business. Normally Directors but could be anyone in the business.
Who is liable in wrongful trading?
The directors and shadow directors. A reasonable director would have taken the reasonable steps because they are the ones most equipped to make these decisions.
What are the consequences of fraudulent trading?
Must wind up the company and contribute to the assets. Could be disqualified from being a director for up to 15 years. Could be fined or imprisoned for up to 10 years.
What are the consequence of wrongful trading?
You could be required to contribute to the company’s assets and face disqualification for up to 15 years.
Does it matter whether fraudulently trading companies are a going concern?
No. They are committing a crime so it can be wound up regardless.
Is it criminal or civil?
It can be both depending on what your involvement is. Any person knowingly contributing can incur a civil liability, but only if the company is in liquidation.
Who can commit fraudulent trading?
Anyone. More likely to be those with an actual power role but anyone could do it. Knowledge that it is going on is not the same as committing it, you have to take an active role.
How is it tested?
The courts simply look for any ‘fraudulent purpose’ as a way to protect the creditors.
