Define: Wrongful Trading

UK Accounting Glossary

Definition: Wrongful Trading

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What is the dictionary definition of Wrongful Trading?

Dictionary Definition

Wrongful trading is when a company trades during a period is which it has no reasonable prospect of avoiding insolvent liquidation.

The liquidator of a company may petition the courts for an order instructing a director of a company that has gone into insolvent liquidation to make a contribution to the company’s assets. A court may order any contribution to be made that it considers proper if it is reasonable to assume that the company director knew, or ought to have known, of the company’s situation.

In regards to wrongful trading, no intention to defraud needs to be shown. A director would be judged liable if a reasonably diligent person undertaking the same function in the company would have realised the situation.

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