How Can Directors Prevent Insolvent Trading ?

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Directors can prevent insolvent trading by fulfilling their duty to prevent their company from trading while it is insolvent. This includes:

  1. Regularly monitoring the financial position of the company and ensuring that it has enough assets to meet its liabilities as and when they fall due.
  2. Keeping accurate financial records and regularly updating their understanding of the company’s financial position.
  3. Seeking professional advice if there are concerns about the company’s solvency.
  4. Refraining from incurring new debts or obligations if the company is or is likely to become insolvent.
  5. Taking appropriate action to address solvency issues, such as seeking a formal restructuring or winding up the company, if necessary.

By fulfilling these duties, directors can help ensure that their company does not engage in insolvent trading and avoid personal liability for losses incurred because of insolvent trading.

It is important to note that the responsibility to prevent insolvent trading is imposed on individual directors and not just the company. Failure to meet these responsibilities can result in civil and criminal liability for the directors depending on the extent and severity of the insolvent trading. Therefore, it is important for directors to ensure that they are aware of their responsibility and are taking all reasonable steps to prevent insolvent trading.

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