Trading while insolvent

A number of legal systems make provision for companies trading while insolvent to be unlawful in certain circumstances, and provide for directors to become personally liable for a company's debts if they have acted improperly.

In most legal systems, the liability in respect of unlawful transactions only extends for a certain period of time prior to the company going into liquidation.

It also means that the directors need to be extremely careful when considering whether to continue to trade, or not.

[3] Under the provision of this act, when a company goes into liquidation, the liquidator must make a report to the Disqualification Unit of the Department for Business, Innovation and Skills on the conduct of all directors.

If the liquidator has come across any conduct which makes the director unfit to be involved in the management of a company in the future (which things would include trading while insolvent) the Department for Business, Innovation and Skills will apply to the Court for an order disqualifying the director or directors from acting as a company director for a certain period of time.