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Fraudulent Trading

A company trading fraudulently, is effectively carrying on its operations with the intention and purpose of deceiving creditors and customers. A director knowingly makes the decision to trade fraudulently and it is a criminal offence for a company to trade this way.

What is fraudulent trading?

Under section 214 of the Insolvency Act 1986, fraudulent trading is the act of deliberately defrauding, creditors or customers. The key point to fraudulent trading is the intent behind the act. A director has clear intent to take money, detriment to creditors and clients.

What are the consequences?

As fraudulent trading is a criminal offence it can have serious repercussions for the directors involved, if they are found guilty. During any process of liquidation, the liquidator will do an investigation into the conduct of the directors to see if they have acted within their responsibilities to do what’s best by the company and its creditors.

During a liquidator’s investigations, if they find that the company directors have been trading fraudulently, it must be proved to the Insolvency Service and it must be proved that the intent was there. The consequences could see directors held personally liable for company debts, given a disqualification as a director, fined and in some cases sent to prison.

fraudulent trading

How to protect yourself from fraudulent trading?

When it comes to protecting yourself, the key is for the directors to be aware of the financial situation of the company. If you know that the company is in a position where it cannot continue trading, or soon will not be able to trade, ceasing to trade and contacting a licensed insolvency practitioner is the best to avoid fraudulent trading.

Do not continue trading, once you’re aware the company has no chance of turning things around.

What to do if trading fraudulently?

If you are aware that your company is heading towards insolvency, or is already insolvent, seeking advice from a licensed insolvency practitioner is vital. From there you can decide on the best way to proceed. If you know your company is trading fraudulently then you should stop immediately. Stop taking deposits for work, stop taking on raw materials, stop the work processes the company has in place.

In summary

Fraudulent trading is a serious offence and will always be taken seriously by a liquidator and the insolvency services. If a director is found to have been trading fraudulently, the consequences for them can be severe. A director could become liable for company debts, on top of any fines given out disqualified as a director and potentially there could be jail time. Avoiding fraudulent trading is simple. Be aware f the company finances and if you fear insolvency, or know you’re insolvent, do not continue trading.

How we can help

If you’re worried you have committed fraudulent trading, or believe it’s something you may do soon, seeking professional advice is critical to avoiding this offence. We can help talk you through fraudulent trading, the actions involved and the consequences. Importantly if your company is in a position of insolvency, now is the time to act.

Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner

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