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What happens to a director of a company in liquidation?
Going through a liquidation as a company director can be an extremely stressful time. This article breaks down the process and gives you an insight into what happens to a director of a company in liquidation.
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What happens to directors in a Creditors Voluntary Liquidation?
If you go through a Creditors Voluntary liquidation as a director, you will effectively lose your powers, as the control of your company will be passed over to an Insolvency Practitioner (IP).
This IP will oversee the liquidation process and sell off the company’s assets to pay outstanding creditors. You will be required to fully cooperate with the IP and provide all the necessary information during this process.
In addition, there will be an investigation into the conduct of the director as part of this process. You may also be asked to attend an interview with the IP where they are asked to provide a statement of affairs.
Businesses can also just pay the interest on their loan for 6 months. This option can be taken 3 times during the loan term.
These options for breathing space can be hugely beneficial to businesses that are expecting an uplift in their trade and who find themselves struggling temporarily.
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Directors Conduct report
What is a directors’ conduct report?
As part of the liquidation, the liquidator legally must submit a confidential report under section 7a of the Company Directors Disqualification Act 1986. This examines how the company operated and the conduct of the director.
This is used to establish if the failure of the company was due to mismanagement or fraud.
What may be considered as misconduct?
- Trading whilst insolvent.
- Acting fraudulently.
- Not keeping accurate accounting records.
- Depriving creditors of assets.
- Not submitting tax returns
It is worth noting you can be banned from being a director for up to 15 years or even prosecuted if the liquidator finds your conduct was unfit.
Can a director of a company resign from a company in liquidation?
Yes, you can resign as a director during a liquidation. However, you will still have to comply with the liquidator and fulfil your obligations.
You can also be held personally liable for business debts if you have personally guaranteed any loans or lease agreements if your company is insolvent.
Can I be a director of a company after liquidation?
Yes, you can be a director of a company after liquidation, provided there aren’t any cases of misfeasance (wrongdoing). There are however rules you would need to follow to ensure you comply with legislation.
- You aren’t allowed to use a similar business name as your previous company, which can lead to criminal action against a director.
- You should read section 216 of the Insolvency Act 1986, which highlights the restrictions on the re-use of company names.
- It is however possible to buy the previous company name. The Insolvency Practitioner can agree to see the name, supported by a court application.
Conclusion: What happens to a director of a company in liquidation?
There are many factors to consider when analysing what happens to a director of a company in liquidation. Much is dependent on the conduct of the director throughout the running of the business and whether they have kept to their director responsibilities.
For free confidential advice and support contact the business helpline on 0800 088 2142. We’ve helped thousands of directors just like you.
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