Congratulations on your role as a director—a title that exudes prestige and financial rewards. Perhaps the champagne flowed when you first assumed the position. However, being a director also entails significant responsibilities, especially when the company faces financial hardships.

Understanding Your Duties

Upon becoming a director, you committed to act in the best interests of the company, its shareholders, employees, and creditors. In times of financial difficulty, this duty of care becomes even more crucial. If insolvency looms, your focus should shift towards safeguarding the interests of creditors over shareholders.

While promoting the company’s success is a regular priority, your paramount concern should be minimising potential losses to creditors. This obligation extends to considering the needs of all creditors collectively, not just those with whom you frequently interact or the ones vocalising their concerns the loudest.

Liabilities and Legal Implications

Should you believe the company is heading towards insolvency, taking immediate advice is imperative. Failing to do so could lead to allegations of wrongful trading or the more severe offence of fraudulent trading.

Wrongful trading is suspected if you were aware or should have known about the lack of reasonable prospects for avoiding liquidation and failed to make every effort to reduce losses to creditors. If directors are believed to have deliberately denied creditors what they are owed, the allegation escalates to fraudulent trading, hinging on intent.

A balance sheet test determines whether the company’s assets’ value is less than its liabilities, and a creditor may request a cash flow test to assess solvency based on the ability to pay debts as they fall due. Simply claiming ignorance of the situation is unacceptable, as it is part of your duty to be aware of the company’s financial status. Resigning to evade responsibility is not an option.

Directors are also responsible for informing employees of the company’s status under employment and pension law.

Consequences of Non-Compliance

Wrongful trading is a civil offence, potentially rendering you personally liable for company debts and at risk of disqualification from directorship for up to 15 years. Fraudulent trading, a criminal offence, may result in imprisonment, director disqualification, and financial penalties.

Seek Professional Guidance

In the face of financial difficulties, seek independent professional advice promptly. The complexities are daunting, but our experienced advisers at DMC can assist you in navigating this challenging terrain.

For an informal chat on how we can help, please get in touch with us. Early action and expert guidance are crucial for a positive outcome.

Email us at or call us on 0161 474 0920 for advice.