Director Duties When Facing Insolvency

1. Act in the Best Interests of Creditors: When insolvency looms, your duty is to protect the creditors’ interests. Continuing to trade or taking actions that may deepen the company’s financial difficulties can lead to personal liability for debts incurred during this period.

2. Avoid Wrongful Trading: Continuing to trade while knowing your company is insolvent, or allowing the company’s debt to grow, can be considered wrongful trading. Directors who fail to stop trading when insolvency is unavoidable can be held personally liable for the company’s debts.
3. Cooperate with Insolvency Practitioners: If formal insolvency procedures like liquidation or administration are initiated, you must cooperate fully with the insolvency practitioners overseeing the process. This involves providing them with accurate financial records and other relevant information to help them carry out their duties.
4. Preserve Company Assets: You must avoid disposing of or transferring any company assets at an undervalue. Any attempt to distribute or hide assets could be seen as a breach of your fiduciary duties and may result in personal consequences, including disqualification from acting as a director in the future.
5. Avoid Preferences: Directors must not favor one creditor over another when the company is insolvent. Giving preferential treatment to certain creditors, such as repaying loans to friends or family first, can lead to serious legal implications, including potential recovery of the payments by an insolvency practitioner.
6. Maintain Accurate Records: Keeping up-to-date and accurate records of your company’s financial status is crucial. If your company enters insolvency, you will be required to present these records to the insolvency practitioners. Poor record-keeping can be seen as neglect of your duties and may result in fines or further action.

7. Seek Professional Advice Early: One of the most important steps you can take if you suspect your company may become insolvent is to seek professional advice as soon as possible. The sooner you engage with insolvency experts, the more options you may have to avoid formal insolvency procedures.

• Disqualification: You may be disqualified from acting as a director for up to 15 years.
• Personal Liability: In cases of wrongful trading, directors can be held personally liable for the company’s debts.
• Fines and Criminal Charges: Serious breaches of your duties, such as fraud, can lead to fines or even imprisonment.

• Stop Trading: Cease trading immediately to prevent further debts from accruing.
• Consult an Insolvency Practitioner: Contact an insolvency practitioner to discuss your options, whether that’s entering a Creditors’ Voluntary Liquidation (CVL), administration, or exploring other solutions.
• Inform Stakeholders: Make sure shareholders, employees, and creditors are informed of the situation.

• Wrongful Trading: Continuing to trade while knowing the company is insolvent can result in personal liability for any debts incurred during that period.
• Fraudulent Trading: Deliberately misleading creditors or engaging in dishonest practices to avoid repaying debts may lead to personal liability and even criminal charges.
• Misfeasance: Misuse of company funds or assets, or breaching your fiduciary duties as a director, can result in personal financial consequences.
• Compensation Orders: If you have acted unlawfully and caused financial loss to creditors, the court may order you to compensate them from your personal assets.

If you are uncertain about any actions you are considering on behalf of your company, it is crucial to seek professional advice. Acting early can help prevent personal liability and ensure you comply with your duties as a director during insolvency.