Insolvent Trading

Directors’ duties

As a director, you have a legal duty to:

regularly review your organisation's financial situation
take steps to question and confirm your financial position and solvency
seek advice from suitable qualified persons if a problem is suspected
act appropriately and in a timely manner to address to solvency issues.

A director is considered as anyone seen to act in that role, even if not in name (for example, a shadow director or someone managing a corporation while disqualified).

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Trading while insolvent

As a director, you have a duty to prevent a company from trading and incurring debt while the company is insolvent.

This means that before a new debt is incurred, you must consider whether there are reasonable grounds to suspect the company is insolvent, or likely to become so as a result of incurring the debt.

You therefore need to be constantly aware of your company’s financial position. It’s not enough to only gain a clear understanding of the company’s financial position when signing off yearly financial statements, for instance.