Wrongful trading

Question 1

who can bring this claim?

Answer 1

liquidator/administrator

Question 2

what happens if the claim is successful?

Answer 2

the court can declare D is liable to contribute to the company’s assets

Question 3

what does the claimant need to prove?

Answer 3

the respondent was a D at the time and they knew/ought to have concluded there was no reasonable prospect that company would avoid going insolvent

Question 4

how does the court assess this?

Answer 4

The court will assess this by looking at the facts, conclusions and steps that would have been done/ought to have been done by a reasonably diligent person with:
o The skills, knowledge and experience reasonably expected of a director; and
o The skills, knowledge and experience of the actual director (cannot lower standard)

Question 5

when will this claim fail?

Answer 5

if the company was not worse off because it continued to trade

i.e. if the company continued to trade but didn’t damage position = claim fails

Question 6

what is a defence to this claim?

Answer 6

D took every step with a view to minimising potential loss to creditors

Question 7

how can D reduce the risk of liability?

Answer 7

D’s should:
o Take professional advice as soon as financial difficulty occurs
o Limit spending and purchases on credit
o Collect debts
o Frequently monitor accounts
o Assess if D’s salaries and other benefits should be paid