Wrongful trading: the 'every step' defence (IA 1986 s.214)

Section 214(2) IA 1986 applies to a person who was a director when they knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation (or insolvent administration), where the company then goes into insolvent liquidation. Gaia was a director in March, when she reached that conclusion, and the company later went into insolvent liquidation, so she is within the section. The only statutory defence is in s.214(3). The court must not make a declaration if it is satisfied that, after that point, the director took every step with a view to minimising the potential loss to creditors that she ought to have taken. That defence is judged on the assumption that she had the relevant knowledge. If Gaia can prove she did this, no contribution order can be made against her.

Why A is wrong: Wrongful trading does not depend on dishonesty or intent to defraud; that is the test for fraudulent trading.

Why C is wrong: Under s.214(4), a director is judged at least by the general knowledge, skill and experience reasonably expected of someone carrying out her functions, not only by her own lower standard.

Why D is wrong: Liability attaches because she was a director when the s.214(2)(b) point was reached; resigning later does not by itself provide a defence.

Why E is wrong: Liability depends on her own position as a director after the critical point, not on which director incurred the debts.