Directors’ duties when a company faces insolvency

If a company is facing financial trouble, directors should seek advice early on regarding what the insolvency of the company will mean for them and what personal liabilities they may face as a result of it, so they can protect themselves as much as possible.

What happens once a company enters administration or liquidation?

Once a company enters administration or liquidation, the insolvency practitioner appointed to take control of the company will investigate the events and circumstances leading up to the insolvency and have a wide range of powers to take action against the directors if they have acted inappropriately.

What are the risks for a director?

The potential risks of insolvency for directors include: the complete loss of power as a director of the business and over the company assets; being personally liable for the company’s debts and disqualification as a director for up to 15 years.

What are the key issues for a company facing insolvency?

When a company faces insolvency the duties of the directors change from being responsible for promoting the success of the company to acting in the best interests of its creditors.

Amongst others, directors can face the risk of being subject to claims for wrongful and fraudulent trading whilst the company was insolvent and the liquidator/administrator has wide powers to investigate and pursue the recovery of monies transferred prior to the insolvency i.e. all transactions can and will be reviewed.

If you need advice on any of the above, please contact a member of our insolvency team in confidence here or on 02920 829 100 for a free initial call to see how they can help.