Wrongful trading occurs when directors allow a company to continue to incur debts even though the business is no longer viable, and the directors knew or ought to have known there was no reasonable prospect of the company avoiding entering an insolvency process.

The company directors may not realise that allowing trading to carry on, causing the financial position of the business to worsen, could allow an administrator or a liquidator to bring claims of wrongful trading against them once insolvency proceedings are underway. A court order could be made against the directors, making them personally liable for losses to creditors.