Reckless and Fraudulent Trading in Ireland: Director Risks Under the Companies Act 2014

Reckless trading and fraudulent trading are two separate concepts in Irish company law, and both can leave a director facing consequences that a limited company would normally shield them from. This guide explains, in plain terms, what the Companies Act 2014 says on each, based on the pages of the Act and the official guidance we opened. It is general information, not legal advice. Rules in this area change, so check the current text of the Act.

If you are also looking at the wider picture of director accountability, our guide to restriction and disqualification of directors covers the related regime.

Two different provisions, two different routes

The Companies Act 2014 deals with trading that harms creditors in two places, and it helps to keep them apart.

• Section 610 is headed "Civil liability for fraudulent or reckless trading of company". It is about whether a person can be made personally responsible for company debts.
• Section 722 is headed "Fraudulent trading of company: offence". It is about criminal liability.

Reckless trading appears in section 610 but, on the pages we read, not as a stand-alone offence in section 722. The gov.ie page on civil liability of directors (page last updated 29 November 2023) lists "fraudulent trading of company" under section 722 as a Category 1 offence, and does not mention reckless trading.

What section 610 says

The text of section 610 on the Irish Statute Book, as enacted in 2014, sets out who can ask the court to act and on what grounds.

Who can apply

As enacted, the application can be made by the liquidator or examiner of the company, a receiver of property of the company, or any creditor or contributory of it. The Revised Acts version of section 610 also refers to a process adviser and to a rescue period under Part 10A.

The two grounds

• Reckless trading (as enacted in 2014): a person was, while an officer of the company, knowingly a party to the carrying on of any business of the company in a reckless manner. Section 27 of the 2024 Act amended section 610(1)(a) to remove the word "knowingly", so check the current text.
• Fraudulent trading: a person was knowingly a party to the carrying on of any business of the company with intent to defraud creditors, or for a fraudulent purpose.

The consequence

The court may declare, if it thinks it proper to do so, that the person "shall be personally responsible, without any limitation of liability, for all or any part of the debts" of the company. In other words, the usual protection of limited liability may not hold for that person. The word "may" matters: the section gives the court a discretion.

How "reckless" is described

Section 610 does not leave "reckless" entirely open. As enacted, it describes two situations in which a person is to be treated as having acted recklessly (the 2024 Act, section 27, changed the wording of subsection (3) so that a person "may be found to have been a party" to reckless trading, and so that the first limb refers to conduct that "would be likely" to cause loss):

• the person ought to have known that their actions, or those of the company, would cause loss to the creditors of the company, judged by the general knowledge, skill and experience that may reasonably be expected of a person in their position; or
• the person was a party to the contracting of a debt by the company and did not honestly believe on reasonable grounds that the company would be able to pay it when due.

The ODCE booklet on the principal duties and powers of company directors (the edition we opened is dated 2018) summarises the same idea: a director of an insolvent company can be made personally liable, without limitation, if they were party to carrying on business they ought to have known would cause creditors loss, or took on a debt without reasonable grounds to believe it would be paid when due.

Conditions that apply to a reckless trading declaration

As enacted, section 610(4) says the court may grant a declaration on the reckless trading ground only if one of paragraphs (a) to (d) of section 570 applies to the company concerned, and the applicant has suffered loss or damage as a consequence of the behaviour in question. We did not read the content of section 570, so we cannot summarise those grounds here. Read them in the Act if the point matters to you.

As enacted, the section also contained provisions on how the court treats a creditor's knowledge of the company's position and on relief for a person who acted honestly and responsibly. The 2024 Act replaced the relief provision in subsection (8) with one under which the court may relieve a person wholly or partly of personal liability if they took reasonably practicable steps to minimise loss from the time they knew or ought to have known their actions would be likely to harm creditors. Read the subsections in full rather than relying on any summary, including this one.

An important caution: section 610 has been amended

The text we describe above is the section as enacted. The Irish Statute Book contents page for the Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024, enacted on 9 May 2024, lists section 27 as "Amendment of section 610 of Act of 2014". According to the Irish Statute Book page for section 27 of that Act, it removed the word "knowingly" from section 610(1)(a), changed the wording of subsection (3) (a person "may be found to have been a party", and conduct that "would be likely" to cause loss) and replaced subsection (8) (relief for a person who took reasonably practicable steps to minimise loss). The commencement order (S.I. No. 303 of 2024) provides for the whole Act to come into operation on 1 July 2024. Anyone relying on section 610 should read the current consolidated text, not only the 2014 original.

Fraudulent trading as a criminal offence

Section 722 is short. It says that a person who is knowingly a party to carrying on the business of a company with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, is guilty of a category 1 offence.

Section 871 of the Act sets out penalties by category. On the page we read, a category 1 offence on summary conviction carries a class A fine or imprisonment of up to 12 months, or both. On conviction on indictment it carries a fine of up to €500,000 or imprisonment of up to 10 years, or both. We have not stated the amount of a class A fine, so check the current figures in the Act.

Other consequences mentioned in official guidance

The ODCE directors' booklet we opened also says that a court can disqualify a person who was guilty of fraudulent or reckless trading while an officer of a company. The booklet predates the 2024 amendments, so treat that statement as a pointer to the statute rather than a current statement of the law. The restriction and disqualification regime is covered in the guide linked near the top of this page.

Where this sits in an insolvency

Section 610 allows the court to act in a winding up or in proceedings under Part 10 of the Act (the Revised Acts version also refers to a rescue period under Part 10A). Our guides on examinership and voluntary liquidation explain how those processes work and who is involved. The applicants named in section 610 (liquidators, examiners, receivers, creditors and contributories) are the people those processes bring into the picture.

Practical points for directors and finance teams

The following are our own suggestions, not legal requirements, and they are not a substitute for professional advice:

• Our suggestion: record the basis on which the board concluded the company could pay its debts as they fell due, particularly when new credit is being taken on. The second description of recklessness in section 610 turns on an honest belief on reasonable grounds.
• Our suggestion: make sure management accounts, cash-flow forecasts and creditor ageing reach the whole board on a regular schedule, so each director can show what they knew and when.
• Our suggestion: where solvency is in doubt, take advice from a solicitor or insolvency practitioner early, before further credit is taken on.
• Our suggestion: finance staff who prepare the numbers should know that escalating a concern in writing is part of normal good practice.

Learnsignal's offices are off Baggot Street in Dublin, and we offer in-person training from there. For current details, see our CPD pages.

Frequently asked questions

Is reckless trading a criminal offence?

Section 610 is headed as a civil liability provision. On the pages we read, fraudulent trading is the one listed as an offence (section 722, category 1). We did not find a separate reckless trading offence on those pages, but take advice for your own situation.

Can a director be personally liable for company debts?

Section 610, as enacted, allows the court to declare a person personally responsible, without any limitation of liability, for all or any part of the debts of the company. It is a matter for the court's discretion, on application by a person named in the section.

Who can bring a section 610 application?

As enacted: the liquidator or examiner, a receiver of property of the company, or any creditor or contributory.

Has section 610 changed since 2014?

Yes. Section 27 of the 2024 Act amended it, with effect from 1 July 2024 (the date the whole Act was commenced by S.I. No. 303 of 2024). The changes include removing "knowingly" from subsection (1)(a), adjusting subsection (3) and replacing subsection (8). Check the current consolidated version before relying on this summary.

Does the size of the company matter?

The pages we read do not make size a condition of section 610 or section 722. Whether your own circumstances engage either provision is a question for professional advice.

Reckless and fraudulent trading rules are a reminder that limited liability has limits. Read the Act itself, and check for amendments, before relying on any summary.