Resigning as a director of a company
Directors resign all the time, for various reasons be it retirement, desiring a new venture or relocation, but to name a few. The process tends to be quick and easy, however certain considerations need to be made. This page firstly describes the resignation process of directors and then addresses some certain considerations.
The resignation process for directors:
- Write a letter, informing your fellow company directors of your intention of a resignation. Note that a justification is not needed, but an official termination date is.
- If the fellow directors approve your intention, form TMO1 is to be filled out and sent to companies’ house, notifying them the intention.
- When companies house receive the form, they will remove you from the list of directors for the companies records.
- You may wish to inform suppliers and customers of your resignation, informing them with the right direction for contact, in your departure.
- So long as you complied with the law during your time in lead, you can now walk away freely.
Things to consider:
If your company has limited liability and falls into debt either before, after or during your resignation, there is no effect for you as a director. Limited liability enables you to benefit as you are not held personally responsible if the company cannot meet its liabilities. Instead, insolvency procedures such as liquidation commence as a means of bringing matters to a conclusion. Only the directors who oversee at the time of the insolvency have the power to begin or prevent the particular procedure – as soon as you resign you have no control over how the company continues to be run.
What about debts or personal guarantees?
Once being removed from the records, your liabilities with the company are complete so long as limited liability is involved. In terms where personal guarantees are involved, the situation gets a bit sticky. It is a common question which we are asked…and the sad truth is that No, when you resign, you do not lose your personal guarantees, they continue to remain – it is not invalidated upon your departure!! This means that if during your directorship, you signed a personal guarantee for a company loan, credit card or other financial deal, then if the company has insufficient funds to pay it back, you will be held liable and you will be chased. Until the money is paid back in full, the debt is the responsibility of you, being the guarantor. Therefore, you should ask to be released from the personal guarantee once you have left.
If you have resigned from the company make sure you pay back any loans that you have had from the company as otherwise you will be chased for them.
Anything which occurred during your time being the director, can come back to haunt you. For example, if the company goes insolvent years later and administrators are called in, they will investigate the director’s actions of the past 3 years – hence you may be held responsible if any wrongful actions occurred. Therefore, consider your actions as a director carefully.
Another thing to consider is, do you have shares? Often directors are also shareholders. In such cases, you must check the articles of association found at companies’ house – in these circumstances are the shares to be transferred? Are they automatically to be sold? Can they be kept?
Finally, are you owed any money yourself? Have you been paid your salary to date in full?
Categories: Implications for Directors
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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.