Under section 214 of the Insolvency Act, on the application of a liquidator, the court may require a contribution to the assets of a company from a person who is or was a director of the company where the company has gone into insolvent liquidation and at some point before the commencement of the winding up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into such insolvent liquidation and that person was a director of the company at that time. This is known as wrongful trading.
The court will not make an order for wrongful trading if, knowing there was no reasonable prospect that the company would avoid going into insolvent liquidation, the director took every step with a view to minimising the potential loss to the company’s creditors as he ought to have taken.
