What is the meaning of fraud trading?
In the UK, fraud trading (more commonly called fraudulent trading) is a serious offence that occurs when a company carries on business with the intention of deceiving creditors or for any fraudulent purpose.
Under the UK’s Insolvency Act 1986, fraudulent trading may occur when company directors or managers:
- Know the company cannot pay its debts but continue taking orders or credit.
- Deliberately mislead suppliers, customers, lenders, or investors.
- Hide assets or falsify financial information.
- Run the business to avoid paying creditors.
Example
Suppose a company is insolvent and its directors know it has no realistic chance of paying suppliers. If they continue ordering goods on credit while concealing the company’s financial problems, this could be considered fraudulent trading.
Consequences in the UK
People found responsible for fraudulent trading may face:
- Personal liability for company debts.
- Disqualification from acting as a company director.
- Civil penalties.
- Criminal prosecution, which can result in fines or imprisonment.
Fraudulent trading is different from wrongful trading. Wrongful trading can occur when directors continue trading after they should have realized the company could not avoid insolvency, even if there was no intent to defraud.
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