What Went Wrong With Wrongful Trading?

In seeking to combat the abuse of limited liability, the wrongful trading provision under section 214 of the Insolvency Act 1986 has long formed part of the UK’s ex post facto creditor protection strategy. However, despite being introduced nearly forty years ago, claims for wrongful trading have been far and few, raising key questions over the provision’s potential. In light of these low numbers, this article assesses the effectiveness of section 214, by examining whether it achieves its underlying objectives. It is argued that, as the regime’s development has been riddled with a lack of clarity, judicial discretion, and inconsistency, officeholders currently face a number of difficulties. These difficulties mean there is currently insufficient incentive for officeholders to bring an action and thus section 214 is not achieving its objectives. However, the provision’s effectiveness can be improved by introducing an ex-ante measure into the ex post facto regime. Premised upon the idea that prevention is better than cure, this author proposes a new model for compulsory preappointment director education. By targeting potential troublemakers from the outset, this eliminates, or at least drastically reduces, the need to rely on section 214 in the first place. wrongful trading, limited liability, company law, insolvency, creditor protection, directors’ duties