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What should I do? What are my duties as a director?
Ok, the most important thing is not to do nothing and don’t panic! What you need to do is have a look at this site to find out what all the options are. If you don't have time then don't worry give us a call on 01289 309431 or 020 7877 0050, explain the situation, and we will happily talk to directors for free for 30-40min to give advice and to see if we can help.
Directors duties in insolvency
In law, if a company is insolvent then the directors have a duty to the creditors and not themselves or the shareholders. As such, the first thing to establish is whether the company is insolvent. We have an online insolvency test to help you establish this. If your business is insolvent then you must act to ensure that you do not make the creditors situation worse. Of course, some directors are guilty of wilfully piling up debt with no hope of paying back creditors and by doing this they are risking an action for wrongful trading that can lead to disqualification and personal liability for the company's debts. Some directors breach their duty to creditors by removing assets from premises or selling assets to another company but the other company does not pay the full price. This is known as a transaction at an undervalue and can be reversed by the liquidator. As such it is imperative that you seek advice before embarking on such a transaction.
Another trap that directors often fall into is the notion that the assets and monies in the company's bank account belong to them personally. Even if a director has funded the business by putting his/her own money into the company this does not mean that assets belong to them. THEY BELONG TO THE COMPANY. The company owes them and if the company goes into a formal insolvency process they would be classed as a creditor and may receive some of the money back. Our advise though is not to fund a company personally without any sort of security for the debt.
Ensuring that you are acting in the best interest of the creditors can be in part achieved by getting proper advice from specialist turnaround practitioners.
So what should you do to ensure you are compliant with your duties as a director?
Try these tests below and see where you might be.
The magic wand test!
Basically, if you feel you could continue your business profitably, if only you could sort the debt that is hanging over your company as a result of a bad trading year or one big creditor could be sorted, then perhaps a company voluntary arrangement may suit your company. Or a pre-pack may be the solution.
I need to stop test!
If the business has no future and is unlikely to be able to continue, then a creditors voluntary liquidation may be the answer. This is preferable to having your business wound up in the court and the court's Official Receiver looking into your affairs. What is more it is ensuring that the business is closed down in a legally correct and orderly way and the creditors can be handled by the liquidator who will remove the creditor pressure for you.
The other options are really just a variation on the above. If you have a buyer for the business then a pre pack could be an option but these are becoming less used these days and need careful consideration. Administration is a powerful tool to protect your business from all creditors, including the bank, but it means that you lose control of the business and it can be costly and damaging to the business going forward.
Find below some of our guides to consider and print out.
