1986 Insolvency Act deals with Wrongful and Fraudulent Trading

Wrongful trading is a civil offence where directors let a company trade when they knew (or should have known) it couldn't avoid insolvency, focusing on negligence, while fraudulent trading is a serious criminal offence involving deliberate intent to deceive creditors for personal gain, like hiding assets or taking money out before liquidation. The key difference is intent: wrongful trading is about poor judgment/recklessness, leading to personal liability and director bans, whereas fraudulent trading involves proven dishonesty, carrying harsher civil and criminal penalties, including imprisonment.

Wrongful Trading

What it is: Continuing to run a company and incur debts when directors knew, or should have known, there was no reasonable prospect of avoiding insolvency.
Key Factor: Negligence or failure to act diligently (not necessarily dishonest).
Consequences: Directors can be held personally liable for company debts and disqualified from being a director.
Nature: Civil matter, judged on the balance of probabilities.

Fraudulent Trading

What it is: Carrying on business with the deliberate intent to defraud creditors or for any fraudulent purpose.
Key Factor: Actual dishonesty, intent to deceive, often involving taking assets or money out to disadvantage creditors.
Consequences: Can lead to severe civil penalties, criminal charges, and imprisonment.
Nature: Criminal offence, requiring a higher standard of proof (beyond reasonable doubt).

Key Differences Summarized

Intent: Dishonest intent (fraudulent) vs. negligence/recklessness (wrongful).
Seriousness: Fraudulent is more serious (criminal).
Liability: Fraudulent applies more broadly; wrongful usually to directors.

When it Matters

Both often arise when a company is facing liquidation, and directors' actions in the period leading up to formal insolvency are scrutinised by insolvency practitioners. Early professional advice is crucial if you fear your company is insolvent to avoid accidentally breaching these rules.

Possible points to raise in any liquidation with the liquidator/company Directors at any Creditor's Meeting, are eg when did the Directors first become aware of the inability to pay it's creditors and was facing insolvency, what advise they took and what actions did they take to mitigate the creditors.exposure. Then relate that as appropriate to creditors experiences (arrive early talk to the other creditors before the meeting to get a wider view of what was going on and when and what was said and promised and see if it all stacks up and identify any inconsistencies as appropriate that may have possibly disadvantaged, or mislead creditors eg did they continue to trade knowing they were insolvent. Questions eg about withdrawals from the company, asset stripping, priority given in paying creditors eg Directors loans repaid or repayment of capital/loans, dividends paid etc..new loans/overdrafts taken out to fund cash flow, . Chase all the all different ways of possibly taking money out of the business. Whether any personal guarantees provided for business, charges on personal assets eg house were released prior to liquidation and so on.