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    What happens to a director of a company that goes into liquidation?

    By Mr Bankruptcy

    26th October 2023

    If you are a director of a business in financial difficulty you will probably be under a fair amount of stress. You may be fully occupied planning the next steps for your business and thinking about employees, but spare a thought for your own future and how you could be affected if your business is wound up.

    What happens to directors when a company becomes insolvent?

    When a company becomes insolvent it must stop trading and a liquidator is appointed to oversee the process. At this stage the role of the director changes.

    With a liquidator in place, the company directors cease to have control of the company or of any of its assets; directors lose their decision-making powers and can no longer act on behalf of the company. As a director, you can resign while your company is in liquidation, but it doesn’t relieve you of your obligations to the liquidator.

    What does a liquidator expect from a company director?

    To enable the liquidator to achieve their objective of winding up the company’s affairs, company directors must provide the liquidator with all the information they request. They must also hand over all the company’s assets, records and paperwork and allow the liquidator to interview them, if requested.

    The liquidator (as an Officer of the Court) has a duty to investigate the circumstances of a company and find out if a director was liable for the failure of their company, or if any wrongdoing occurred during their time as director. 

    Is a director liable for company debts?

    A limited company is a separate legal entity from its directors, so they may not be liable for the company’s debts unless a director has acted as a personal guarantor for a loan, there exists an overdrawn director’s account, fraudulently accumulated debt or evidence of fraudulent trading or pensions.

    Are directors held accountable for liquidation?

    The liquidator will investigate the reason the company became insolvent and will want to determine whether the director’s action had a role to play in the firm’s failure. If they find that the director acted inappropriately prior to winding up the company, such as not prioritising creditors in their activities, they could be banned from holding a directorship for between two and 15 years.

    Financial penalties, being held personally liable for debts or, in the case of fraud, a prison sentence are all possible sanctions that can be taken against a director.

    Can you be a director again after liquidation?

    You can be a director again if there was no wrongdoing on you part as a director, but there are a couple of specific restrictions. For a start, you will not be able to use the same or a similar business name for your next company.

    And if you were the director of a company that went into compulsory liquidation or a Creditors’ Voluntary Liquidation, then you could be banned from forming or managing any business with the same or similar name for five years.

    Are directors entitled to redundancy pay?

    Redundancy pay and other statutory entitlements can be claimed if you have been paid by PAYE and you meet minimum working hours in the business.

    James Rosa Associates

    If you believe your company is at risk of becoming insolvent, as a director, it is your responsibility to act quickly and seek advice to ensure that you meet your responsibilities. James Rosa associates is a firm of debt advisors and debt adjustors which can help directors in such a situation.

    With a supportive and non-judgemental approach, we offer a wide range of advice and professional services to business owners/directors, as well as individuals, who face unmanageable debt or who are involved in civil or commercial disputes. Our services include:

    • Insolvency support
    • Negotiated settlements
    • Personal assisted bankruptcy
    • Mediation

    We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.

    Find out if you qualify for a free consultation

    If you need to tackle an unmanageable debt or bring a dispute to a swift and cost-effective resolution, then contact James Rosa Associates straight away, ring 0845 6807217 or email enquiries@jamesrosa.co.uk and we can explore whether you qualify for a free consultation.

    What happens to employees when a business goes into administration?

    By Mr Bankruptcy

    20th October 2023

    Financial uncertainty looms over many businesses, no matter their size. With the likes of Wilko going into administration and putting 12,000 UK jobs at risk, it’s important to understand the impact to employees should the worst happen and your business has to bring in the administrators.

    It’s also critical that everyone in your business understands their options and subsequent rights, which will depend on the outcome that administrators can find.

    What does going into administration mean?

    Being in administration doesn’t necessarily mean that a company will be closed down. It’s just the start of a legal process that allows time for opportunities to be explored in order to the keep the business running and to save jobs.

    However, as this process is undertaken, it can lead to different possible outcomes, which impact on employees in different ways.

    The impact of administration outcomes on employees

    There are three main ways in which employees can be impacted when a business is in administration:

    • Redundancy:

    This is the most likely outcome if a business goes into liquidation as a result of administration. If an employee is made redundant in the first 14 days of their business being in administration, they will be entitled to arrears in pay and redundancy payment, if eligible. However, these employees will be considered ordinary creditors, which means they are last in line to receive money owed.

    Money left owing to an employee may be claimed through the Redundancy Payments Service from the National Insurance Fund, but the claim needs to be made within six months of their dismissal. It is also worth noting that only specific types of monies can be claimed, such as wages, redundancy and holiday, and that these amounts are capped.

    • Continuation of employment:

    If an employee remains employed beyond the first 14 days of administration, the administrator then takes responsibility for employment rights. At this stage, these employees become preferential creditors should their employment eventually terminate and they are still owed money. This means they move up the list of priority creditors and are more likely to receive the money owed to them.

    Again, what can be claimed is specified and capped and anything owed above this is claimed as an ordinary creditor, so they have less chance of receiving the additional monies owed.

    • Transfer of employment

    If the business is sold, the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) could apply and employment would be transferred to the new owner of the business. Continuity of employment is preserved, and existing terms and conditions of employment may continue, although there is flexibility to change terms of employment in these circumstances to help ensure the company survives.

    Business owners, administrators and employees all hope that a business can be turned around so no one loses their job. But when this isn’t possible, all parties need to prepare for the worst case scenario and understand their rights and obligations in every likely situation.

    James Rosa Associates

    James Rosa associates is a firm of debt advisors and debt adjustors. With a supportive and friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors who face unmanageable debt or who are involved in civil or commercial disputes. Our services include:

    • Insolvency support
    • Negotiated settlements
    • Personal assisted bankruptcy
    • Mediation

    We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.

    Find out if you qualify for a free consultation

    If you want to deal with an unmanageable debt, or bring a dispute to a swift and cost-effective resolution, contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for a free consultation.

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