Directors Duties in Insolvency and their Implications

Am I Trading Whilst Insolvent? – Directors Guide To The Risks

in Directors Duties in Insolvency and their Implications Worried Director What Will Happen To Me After Liquidation?

Trading whilst insolvent is a legal term used to describe a business which continues trading when it cannot pay its debts and its liabilities are greater than its assets.  It can lead to a breach of several provisions of the Insolvency Act 1986 which can result in the directors being held personally liable

Read
Am I Trading Whilst Insolvent? – Directors Guide To The Risks

What Is A Phoenix Company And How Do They Work?

in Directors Duties in Insolvency and their Implications Pre Pack Administration Process and Procedures

A phoenix company is a new company that rises "from the ashes" of a previously insolvent company It is achieved by having the assets and goodwill of the company being transferred to a new company under the same set of directors. The process is completely legal as long as the assets are fairly valued.

Read
What Is A Phoenix Company And How Do They Work?

Guide To Directors Disqualification

in Directors Duties in Insolvency and their Implications

If your company is struggling, you’re likely worried about everything, but one fear that keeps directors up at night is the possibility of being personally held responsible. And, to be frank, the legal jargon around director disqualification can feel overwhelming.The good news is that a company going into liquidation does not result in an automatic ban. Disqualification only happens when a director has been found to have acted in an unfit manner, either negligently or wrongfully. We’re here to help you understand what that means, and what you can do about it.How Do You Know If You’re at Risk? The Department for Business and Trade (DBT) investigates directors based on “unfit” conduct. Based on our years of experience, these are the most common behaviors that can trigger a disqualification investigation:Wrongful Trading: This is the most serious issue. Continuing to take credit or trade when you knew, or should have known, there was no reasonable prospect of paying creditors. It's a very difficult and stressful judgment to make, but it's crucial. Taking Excessive Salaries: Taking a large salary or excessive drawings while the company's financial position is poor. Neglect of Director Duties: This isn't just about wrongdoing; it's about not doing your job. Failing to file annual accounts on time or keep proper company records can be seen as an indicator of unfit conduct. Misusing Funds: One of the most common red flags today is the misuse of government loans, such as misrepresenting facts on a Bounce Back Loan application or using the funds for personal gain.The Investigation and Its Consequences When a company goes into liquidation, the liquidator must submit a report on the conduct of all directors to the DBT. This is often called a "D report." If this report indicates wrongful conduct, the DBT can seek a court order to disqualify a director for a period of 2 to 15 years.A disqualification is not a slap on the wrist. It’s a complete ban that prevents you from acting as a director or being involved in the management of any company during that period. Doing so is a criminal offence that can lead to fines, imprisonment, and personal liability for company debts. We understand how serious and terrifying this is, and it's why it is so important to get expert advice early. Case Study: The Danger of Wrongful Trading In a recent case we handled, a director of a small company continued to trade for six months while the company was insolvent. The director was trying to save their business and was emotionally invested in continuing the fight for survival. However, in doing so, they took a salary and paid their own personal taxes while allowing debts to HMRC and suppliers to grow significantly.When the company was eventually liquidated, the investigation found that this action was not in the best interest of the creditors as a whole. While the director did not go to prison, they were banned for 10 years and held personally liable for a portion of the company’s debts. This is a tough lesson, but it shows how crucial it is to get a handle on the situation before it gets worse.How to Protect Yourself and Your Family If you're worried about wrongful trading, the single most important thing you can do is to act early, get professional advice, and show that you've been acting sensibly, responsibly, and reasonably throughout the process.Get Advice Early: You are not alone. As soon as you feel overwhelmed, seek professional advice from a licensed insolvency practitioner who can help you understand your options. Make and Document Decisions: Hold regular, minuted board meetings and keep a clear record of all key decisions you make. This shows you were acting responsibly. Consider a CVA: The Company Directors Disqualification Act only applies when a company enters liquidation. It does not apply in a CVA, so a CVA does not require any investigations into a director's conduct.If you are facing the threat of disqualification, it is vital to seek legal advice immediately from a corporate lawyer with experience in defending such actions.Need to Talk? We're Here to Help. If you're worried about your business or a potential conflict of interest, we can help you understand your options and take the strain off what’s happening. Our team of experts is here to provide confidential advice and support.ReferencesGOV.UK – Company Directors Disqualification Act 1986 (CDDA) GOV.UK – Directors’ Responsibilities in Financial Distress

Read
Guide To Directors Disqualification

UK SME companies run by women are less likely to go bust than companies run by men.

in Directors Duties in Insolvency and their Implications News

UK SME companies run by women are less likely to go insolvent than companies run by men.KSA Group Limited, insolvency practitioners who run the website www.companyrescue.co.uk has researched the UK SME market of over 4m businesses in an attempt to see if there was a gender bias on the board of companies that become insolvent.The study was designed to investigate if the insolvency rate was higher for male or female-run companies.  In this follow up to its 2018 Study of its kind in the UK, companies were investigated to determine the gender of the board of companies that had either gone into administration or liquidation over the last twelve months, to see if there was any correlation between gender and the general financial health of a business.Key findingsInsolvency rate is 71% higher in male run companies 9 times as many companies are run by men than women There is a small difference in the industry sectors of companies run by men or run by women. Construction businesses more likely to be male run and education business more likely to be run by women.It was found that the insolvency rate of male-dominated businesses was 0.7% and those in female-dominated businesses was 0.41%.  So, the insolvency rate is 71% higher in male-run businesses.What conclusions can we draw from these findings? KSA Group said; “It is apparent that the insolvency rate is higher in male run businesses, but this may be due to a number of factors that have nothing to do with whether men are inherently worse at running businesses than women.  It may well be that the businesses that tend to be more likely to become insolvent due to the nature of the industry or recent economic events are coincidently run by men.” However, he went on to add that "This is now the third study that we have carried out since 2018 and the results are very similar.  In 2018 the types of businesses run by women were different to the ones in 2024. In 2018 property businesses made up a higher proportion of women run businesses that went into insolvency whereas in 2024 it was Retail and Education.  This might suggest that the business sector is not that relevant and so pointing to a higher financial competency, or less risk taking, by women directors. Women in the Insolvency Profession On average, 15% of Licensed Insolvency Practitioners (IPs) are women which does mirror the number of women run businesses.  One outlier firm is ​Alvarez and Marsal Europe LLP with 27% of their IPs being women.  ​See the pie charts below which have categorised businesses into the established Standard Industry Classification. 

Read
UK SME companies run by women are less likely to go bust than companies run by men.

Company Insolvency in Scotland

in Directors Duties in Insolvency and their Implications Research and Statistics What is a CVA (Company Voluntary Arrangement)?

Is there a genuine company rescue culture in Scotland? There is only one company driving the rescue culture in Scotland, and you have found it!Our firm RMT KSA, who run this website, are responsible for a significant proportion of CVA led rescue work in Scotland.If you run an insolvent or struggling Scottish company the chance of rescue is low. Amazingly, less than 1% of insolvent companies are rescued by a company voluntary arrangement or CVA each year!  This is compared to England and Wales, where proportionally, the CVA is used 4 times as often.So always ask your advisors these questions - What about a CVA - would that work? What is the comparison between CVA and liquidation? What is the comparison between CVA and administration?

Read
Company Insolvency in Scotland