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.
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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 email@example.com and we can explore whether you qualify for a free consultation.
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.