If a company is deemed to be Wrongfully Trading and goes into administration or liquidation, the directors would incur personal liabilities. Even where dishonesty is not involved.
Wrongful Trading is placing orders with no reasonable expectation of being able to pay for them when the bills fall due. This also applies to taking customers deposits without any reasonable expectation of being able to fulfil the orders.
Some companies have made illegal director loans, which would increase personal and legal liabilities.
Covid-19 is why the Wrongful Trading rules were temporarily suspended. They were fully reinstated from 1 October 2020.
Many companies are misled by their apparently healthy Bounce Back Loan, BBL, inflated cash balances. BBL loan monies were automatically transferred into the main bank accounts.
Interest will be charged after 6 months and the BBL will eventually have to be repaid.
Even if your business is not directly impacted by covid-19, many of your clients may be unable to pay you, due to covid-19, which could push you into financial difficulties.
Be careful, as there are many financial traps for the unprepared!