What constitutes wrongful trading?

Wrongful trading specifically refers to the situation where directors allow a company to continue trading even though they know, or ought to conclude, that there is no reasonable prospect of avoiding insolvency. In this context, failing to take steps to minimize losses when insolvency is clear highlights a director's responsibility to act in the best interest of creditors and the company. This involves recognizing the financial situation and ensuring that further debts are not incurred when the company cannot pay its existing ones.

When directors neglect this duty, they may be found liable for wrongful trading, as they have not acted in a manner expected of a prudent director under the circumstances. Their actions—or inactions—can lead to increased liability, as they could be held responsible for the company's debts incurred post the point at which they should have ceased trading. This concept emphasizes the importance of responsible corporate governance and financial management from directors.

The other options pertain to various unethical or illegal actions, such as misrepresentation, misuse of assets, or concealing information, but they do not specifically encapsulate the legal definition or conditions of wrongful trading as established in company law. Therefore, while they are serious issues, they fall outside the precise legal construct that defines wrongful trading.