Insolvent Trading
Where a company incurs debts while insolvent, potentially exposing its directors to personal responsibility for those debts.
The basic concept
Insolvent trading refers to a company taking on new debts at a time when it is insolvent, or becomes insolvent as a result. Directors are generally expected to prevent the company from incurring debts it cannot pay. Where a director allows the company to keep trading and racking up debts while insolvent, they may face personal consequences in relation to those debts, subject to the relevant rules and defences.
Why directors take care
Because the consequences can be serious, directors who suspect their company may be insolvent commonly seek prompt professional advice and consider formal options such as administration. Available safe-harbour style protections and defences are technical. This is general information only and not legal advice. The underlying concept is explained at insolvency.
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