It's rarely that clear cut Kalleh.
It is a fact (supported by widespread practices within the more aggressive parts of the debt collection business) that the vast majority of businesses that sink, with debts unpaid, were
trading while insolvent prior to folding.
This makes the debts enforceable against the Directors, incidentally.
Not a lot of creditors bother because it's not worth doing for less than a few k (this will suggest how smart crooks get away with it over and over... basically you make sure you don't owe any one creditor more than that
).
There is an ethical argument about how far one should trade while knowing the debts cannot be paid of.
My position is that it is morally wrong to run a business, at any time, such that ALL creditors cannot be cleared. But few will agree, taking the more common position that creditors are taking a risk when extending credit and they know it, etc. I think this is bollox
But then, from the 30 years I've been in business, there is not one person who will say I treated them like ***t, and I quite like being in that position. If I took somebody for money, he will spend the rest of his professional life badmouthing me - just like happens to so many of the "colourful" characters in aviation.
If I was running a school I would put client deposits into a separate account and make sure there is always enough liquidity to refund all not yet delivered training.