Director Responsibilities During Insovency
As a company director, you have legal duties during the liquidation process. One of the most important is to stop trading as soon as you realise the company can’t pay its debts. Continuing to trade while insolvent can lead to serious consequences, including personal liability.
Your Responsibilities
You must also give the liquidator full access to all company records, accounts, and bank statements. Directors must attend meetings if needed, respond to requests for information, and avoid making payments that favour certain creditors over others. At DMC Recovery, we help directors understand and meet these responsibilities to avoid legal risks.
We often meet with directors who are concerned about their position when the company is in financial difficulty and explain how they continue and how to set a benchmark to know when it is time to stop.
When there is a risk of insolvency the decisions of directors come under a spotlight. That is when director disqualification investigations become more likely.
The threat of director disqualification
If you are a director of a business facing insolvency you need to decide whether the company should stop trading, and if so, when. Your role changes, to include a duty to ensure that you do not make the position worse for creditors and shareholders whilst the company’s future is determined. If there is a real risk that creditors will not be paid and you allow the company to continue, you may leave yourself open to claims of wrongful trading, leading to possible director disqualification and/or personal liability.
The courts expect directors to take advice from professionals, when the business at risk of insolvency this advice should be from a licensed Insolvency Practitioner.
It can be particularly difficult if, as directors, you do not agree with each other on how to deal with the problems. We can help you to work out the best way forward.
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Director disqualification – what does it mean?
If a company enters a formal insolvency such as administration or liquidation the insolvency practitioner is required to report to the Insolvency Service on the conduct of directors.
As a result of that report or other information provided by other government bodies a director disqualification investigation may be instigated by the Insolvency Service. If you are disqualified as a director, it can be for up to a maximum of 15 years, depending on the severity of the case. Whilst disqualified, a director, cannot (amongst other things) without specific permission of the court:
- Act as a company director
- Take part in the formation, management or promotion of a company or limited liability partnership, either directly or indirectly.
Director disqualification can be extremely damaging both for your reputation and your finances.
It is essential, therefore, that you are making the right decisions when facing insolvency and that these decisions are properly recorded. We can help you to understand what is expected of you and help you implement practical measures to create a framework for managing a company in difficulty.
Setting up a new company
If you are considering setting up a new company to carry on the same or a similar business it is important that you do not fall foul of the insolvency legislation. We can help you understand the rules and the implications if you get it wrong.
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