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Wrongful trading

Are you trading while insolvent?

Fear of wrongful trading, that is, trading while insolvent, can be a serious worry for company directors.

The penalties can be severe. If you’re found guilty, you could be banned from holding a directorship for up to 15 years and be held personally liable for the company’s debts. That could result in a bill for hundreds of thousands of pounds.

Nor do you need to be aware that you are trading while insolvent to be guilty of the offence of wrongful trading.

One of the tests is whether you acted in a way that a ‘reasonable person’ would have acted. If circumstances overtake you, it’s possible to be blinded to the reality of the situation until too late.

How to avoid wrongful trading

There are a number of obvious signs that your business is heading into trouble and that it could be insolvent. If these are happening in your firm, you should assess the situation urgently:

– failing to submit accounts and returns to Companies House.

– not operating VAT or PAYE schemes correctly.

– paying what seem to be excessive salaries to directors.

– debts are getting bigger, with no plan for how to clear them.

The best way to avoid the risk of wrongful trading is to act as soon as you become concerned.

Wrongful trading and poor cash flow

Your business is insolvent when it can’t pay its debts. While cash flow problems can be a sign of   insolvency, they can also have other causes.

Even profitable firms struggle with cash flow when customers take a long time to pay their debts, or a large contract runs on longer than anticipated. Money has to be paid out to staff and suppliers while little is coming in from customers. The result is a cash flow gap.

This is not the same as being insolvent, which is when your business cannot afford to repay its creditors.

Avoid wrongful trading with help from Business Recovery

If you’re worried about your cash flow, or whether your business has a future, speak to one of our commercial finance experts.

Hundreds of firms have benefitted from finance solutions that we have helped them to arrange. We have a network of funders who have cash they want to lend, in various different ways, providing working capital that can be used to create success.

Prevention is better than cure, meaning it’s better to act sooner rather than later. Using our service will cost you nothing, so call now to discover how we can help.