Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Wrongful trading definition

What does Wrongful trading mean? In practice, wrongful trading describes a director allowing a company to keep trading when there is no reasonable prospect of avoiding insolvent liquidation or administration, and failing to take every step to minimise loss to creditors. In England & Wales and Scotland it is a statutory ground under the Insolvency Act 1986 (section 214 for liquidation and section 246ZB for administration), with equivalent provisions in Northern Ireland. A liquidator or administrator may seek a court order requiring the director to contribute personally to the company’s assets for losses caused. The test is mixed subjective/objective: liability arises once the director knew, or...

Trading Whilst Insolvent: Company Claims, Is Litigation ‘Trading’, and Director Liability

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Published by a LexisNexis Restructuring & Insolvency expert

Q&As

Can a claim be made against a company for trading whilst insolvent?

Wrongful trading

There is no standalone claim triggered merely by a company ‘trading whilst insolvent’, even though that phrase is commonly used. What is usually intended is a ‘wrongful trading’ claim. This cause of action arises under section 214 of the Insolvency Act 1986 (IA 1986) and, at present, applies only where a company has gone into an ‘insolvent liquidation’. IA 1986, s 214(6) defines this as the company entering liquidation at a time when its assets are insufficient to meet its debts, other Liabilities, and the expenses of the winding up. The key point is that a wrongful trading claim can only be brought by the company’s liquidator; it is not a claim that a creditor may advance against a company, whether or not insolvency proceedings are on foot. The claim is pursued against the company’s director(s), rather than the company itself...

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Web page updated on 27/05/2026

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