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Essex Bookkeepers Explain the Perils of Fraudulent Trading in Insolvency
Fraudulent trading occurs when a director purposely sets out to deceive or defraud creditors, or acts unethically or recklessly. It is a very serious offence that leads to criminal proceedings.
If the liquidator finds any evidence that could imply that the directors we operating outside of their official duties then this evidence will form part of the report they submit to the Secretary of State. Here Essex bookkeepers Office Assistants look at the meaning behind fraudulent trading in insolvency, and how to avoid it.
What is fraudulent trading?
If it can be proved that a director did any of the following, it is likely they will be subject to a fraudulent trading claim:
Accepted payments from customers for orders they knew they would not be able to fulfil
Made attempts to maximise income in advance of liquidation
Used credit facilities in the knowledge that the debts incurred could not be paid
Sold company assets under market value
Placed a particular creditor or creditors in a preferential position, for example by paying one creditor but not another (preferences)
What is misfeasance?
Any director or manager of a company entering liquidation who uses funds for an unauthorised or improper purpose; who makes or takes unauthorised loans or remuneration to other directors or who takes improper dividends is likely to be investigated under Section 212 of the Insolvency Act.
If found guilty, the director in question could well be forced to repay or restore any funds or property that has been misapplied, or pay the sum involved into the assets of the company.
How to deal with financial challenges in business
"There is plenty of help available to businesses facing financial difficulties. The thing NOT to do is ignore what is going on and use hope as a tactic or, worse still, any of the actions listed above. Instead, be open and upfront with everyone. Talk to your creditors. Discuss things with your bookkeepers and accountant. Ask the bank for advice. No one will want to see you fail and will be ready and willing to help, as long as you just ask," says Office Assistants.
Office Assistants offers bookkeeping services and much more to clients throughout the south east of England from their base in Rainham, Essex. For more information visit http://www.officeassistants.org.