Reckless Trading

Directors and those involved in managing a company may face personal liability for its debts if found to have engaged in fraudulent or reckless trading. Fraudulent trading involves knowingly conducting business with intent to defraud creditors or for a fraudulent purpose and carries criminal sanctions. Reckless trading requires a lower standard of culpability and occurs when a company’s business is conducted in a manner that demonstrates an obvious or serious risk of loss to creditors, which the responsible party disregards.

Applications for personal liability can be made by liquidators, creditors, examiners, or shareholders, often during winding-up proceedings. To establish reckless trading, it must be shown that the officer acted with knowledge or imputed knowledge of the risk and failed to act responsibly. The court may deem reckless trading to have occurred if the officer did not reasonably believe the company could pay its debts, considering all liabilities.

Liability may be declared for specific debts or all company debts, and the court can order payments to affected creditors or the company itself. Officers may reduce or avoid liability by demonstrating they acted honestly and responsibly. However, creditors aware of a company’s financial instability yet still advancing credit are less likely to benefit from a reckless trading claim.

Read a detailed Article on this subject with the Legislation and Cases, browse Irish Legal Guide  or Contact Us for advice below.