UK company directors must act in the way they consider, in good faith, would be most likely to promote the success of the company. When the company is solvent, that is largely a shareholder-facing duty. When insolvency is likely, the interests of creditors take on much greater weight.
The shift towards creditors
This is not a theoretical point. It should affect whether new liabilities are taken on, whether one creditor is paid ahead of others, and whether the company continues to trade in the hope that a large receipt will arrive.
Directors who document their decisions, take advice and look at a current cash-flow are in a stronger position than directors who continue as normal because the position feels uncomfortable to face.
Wrongful trading is about worsening the position
The risk is not that a company becomes insolvent. Many companies do. The risk is that directors knew, or ought to have known, that there was no reasonable prospect of avoiding insolvent liquidation and continued to trade in a way that increased the loss to creditors.
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Speak with a Turnwell commercial adviser. We help directors understand their options, protect value, and preserve legal compliance before taking action.
That is why an honest viability view matters. If the business can still be turned around, continued trading may be the right course. If it cannot, a managed liquidation or other closure option may be the more responsible one.
Keep the personal position in view
Duties to the company sit alongside personal guarantees, overdrawn loan accounts and, in some cases, the risk of personal claims. Those issues are covered in director support and in our note on personal guarantees.
Construction directors making decisions about live sites should also read director support for construction businesses. Completing a job is not automatically the safer course, and stopping is not automatically the safer one either. It depends on cash, contract risk and creditor outcome.
