fraudulent trading

Definition

A business activity that is deliberately designed to defraud creditors. For example, the executives of a manufacturing plant might take deposits for a large order of product, knowing that the company will be unable to deliver the product due to impending bankruptcy. If a liquidator expects that a business has engaged in fraudulent trading during the winding up of a company during bankruptcy, the liquidator can bring a case to court that could require parties aware of the fraudulent activity to pay. It is often hard to prove that fraudulent trading has taken place due to the high burden of proof, since a third party often has to come forward indicating that it has benefited from the fraudulent activity. Fraudulent trading is not the same as insider trading. See also wrongful trading, cross-firing.