What is fraudulent trading?

Fraudulent trading refers to activities conducted by a business that are intended to deceive creditors, often to avoid fulfilling financial obligations. This practice typically involves the company continuing to trade while it is insolvent, with the intention of misrepresenting its financial health to secure profit or avoid responsibility for debts.

In detail, fraudulent trading undermines fair business practices and can carry severe legal consequences for directors and shareholders if it's proven that they knowingly engaged in such behavior with the aim of harming creditors. The legal framework in many jurisdictions, including the UK, allows liquidators to pursue claims against individuals involved in fraudulent trading to recover losses for creditors.

In contrast, other choices represent concepts that do not align with the implications of fraudulent trading. Honest trading practices foster trust and stability in the market, while methods of financial planning aim to align business goals with ethical standards. Additionally, merely focusing on increasing company profits is a legitimate business objective unless pursued through deceptive means, which would then fall into the realm of fraudulent activities.