HomeFWJ TakeawayWhat is the punishment for Wrongful Trading and Fraudulent Trading?

Under the Insolvency Act 1986, the difference between damages awarded for Wrongful Trading as opposed to Fraudulent Trading is that the former is deemed compensatory whereas the latter is punitive.

Accordingly, a Director may be liable for all or some of the losses to the Company as a result of his/her actions directly or as a result of the actions of the Company generally (s/he may be jointly responsible together with the rest of the Board).  However, the judgement will only ever be limited to the amount of the loss.

However, with regard to Fraudulent Trading, the judgement sum can be far higher as there is both the compensation element and the punitive element (which is acknowledged as perfectly allowable as part of any civil claim).

In addition, it must be remembered that Fraudulent Trading proceedings may be brought against “any person” who carried on the business, and thus is not merely confined to Directors.

In either of the above circumstances there will undoubtedly also be legal costs sought (which may be on a Conditional Fee basis, including an uplift on the Liquidator’s solicitors fees and, potentially, a large insurance premium).  Interest on any such sums may also be sought (which after several years can in some scenarios equal the value of the underlying claim).

It is little known but if proceedings are brought for Wrongful Trading or Fraudulent Trading, the Court has a discretion to also make an Order disqualifying the Defendant (whether a Director or not where the claim is for Fraudulent Trading) from acting as a Director for a period of up to 15 years.

Please see our web page which provides details on Director Disqualification.

There is no need for the Claimant Liquidator to apply for an Order disqualifying the Director and such an Order lies within the discretion of the Court.

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