Trading while insolvent (UK)
- Trading while insolvent (UK)
In many legal systems, once a company becomes insolvent, the directors have to take particular care. Under UK law, trading while insolvent can trigger several provisions under the "Insolvency Act 1986" which may have the effect of making directors of a company personally liable to contribute to the assets of a company.
The relevant provisions of the Insolvency Act 1986 include:
*Wrongful trading - Section 214
*Transaction at an undervalue - Section 238
*Preferences - Section 239
*Extortionate credit transactions - Section 244
Under wrongful trading legislation in the UK, if the company continues to trade while it is insolvent the directors of the company may become personally liable to contribute to the company's assets and help meet the deficit to unsecured creditors if the company's financial position is made worse by the directors continuing to trade instead of putting the company immediately into liquidation.
In most legal systems, the liability in respect of other transactions only extends for a certain period of time prior to the company going into liquidation. 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. 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 of Trade and Industry on the conduct of all directors. If the liquidator has come across 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 DTI will apply to the Court for an order disqualifying the director or directors from acting as a company director for a certain period.
Many other countries have similar laws, often referred to as 'insolvent trading' or wrongful trading.
External links
* [http://www.insolvency.gov.uk/ Insolvency Service website]
Wikimedia Foundation.
2010.
Look at other dictionaries:
Trading while insolvent — is unlawful in a number of legal systems, and may result in the directors becoming personally liable for a company s assets. Under UK insolvency law trading once a company is legally insolvent can trigger several provisions of the Insolvency Act… … Wikipedia
Wrongful trading — is a principle of UK insolvency law. It was introduced to enable contributions to be obtained for the benefit of creditors from those responsible for mismanagement of the insolvent company. The Insolvency Act 1986The principle of wrongful trading … Wikipedia
United Kingdom insolvency law — deals with the insolvency of firms in the United Kingdom. The primary pieces of legislation are the Insolvency Act 1986 and the Enterprise Act 2002.History*Bankruptcy Act 1542 *Statute of Anne Bankruptcy Act 1705Company lawHowever, there are… … Wikipedia
Ansett Australia — Infobox Airline airline = Ansett Australia logo size = 200 IATA = AN ICAO = AAA callsign = Ansett parent = Ansett Australia Limited (ACN 004 209 410) founded = 1936 ceased = 2002 key people = Sir Reginald Ansett (founder) Sir Peter Abeles (former … Wikipedia
History of Air New Zealand — The history of Air New Zealand, the national carrier of New Zealand, began when the amalgamated East Coast Airways and Cook Strait Airways began operations in January 1936 as Union Airways of N.Z. Ltd, the country s first major airline. Union was … Wikipedia
John Elliott (businessman) — John Dormer Elliott (born 3 October 1941) is a prominent Australian businessman, former president of the Liberal Party, and former president of Carlton Football Club. In 2003 he was found guilty of trading while insolvent and in 2005 declared… … Wikipedia
Morphites v Bernasconi — Morphitis v Bernasconi Court Court of Appeal Citation(s) [2003] EWCA Civ 289, [2003] 2 WLR 1521 Keywords Fraudulent trading Morphitis v Bernasconi [2003] … Wikipedia
cash flow problem — an insolvency Cash flow, the money we receive against what we have to pay, is always a problem, needing constant attention. This usage is of corporate trading while insolvent: Once that word gets out we are going to have what is… … How not to say what you mean: A dictionary of euphemisms
Insolvency — means the inability to pay one s debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts. Business insolvency is defined in two different ways: Cash flow insolvency Unable… … Wikipedia
United Kingdom company law — Beside the River Thames, the City of London is a global financial centre. Within the Square Mile, the London Stock Exchange lies at the heart of the United Kingdom s corporations. United Kingdom company law is the body of rules that concern… … Wikipedia
