What consequence arises when a director engages in wrongful trading?

When a director engages in wrongful trading, the primary consequence that arises is civil liability. This means that if a company goes into insolvent liquidation, directors can be held personally liable for the debts of the company if they continued to trade knowing that there was no reasonable prospect of avoiding insolvent liquidation. The law seeks to prevent directors from running up debts when they are aware that the company is in financial trouble and cannot recover.

Civil liability can manifest in various ways, including the possibility of the director having to contribute to the company's assets to help pay off creditors, and it can also result in disqualification from acting as a director in the future if their conduct is deemed particularly egregious. This approach is designed to ensure directors act responsibly and in the best interests of the company and its creditors.

Other potential consequences like monetary fines or suspension may occur under different circumstances but are not the primary legal outcome associated with wrongful trading. Additionally, if a company is profitable, it would not typically be engaged in wrongful trading, as the concept is tied to continuing to incur debts despite knowing the company is likely to fail financially.