Our friends Higgs & Sons from Birmingham warn directors over their duties: Higgs and Sons are a progressive law firm with an insolvency law group.
Here is an extract from today's Business Desk Midlands:
"David Ellis, a partner at Higgs and Sons, said his firm was increasingly meeting directors of insolvent companies who were surprised to find themselves made personally liable for their company’s debts when the firm failed.
“Many entirely honest directors whose companies have failed through no fault of their own are finding themselves facing personal liability on two counts,” explains Mr Ellis".
“First, liquidators are challenging directors who have taken their remuneration through dividends rather than as salary. This is often recommended by their accountants to save tax however if the company is failing and there are insufficient profits to justify such dividends then these can be clawed back by the liquidator as illegal payments.
"Secondly, if it is found that a director has permitted the company to trade on longer than a "reasonable" director would have done, the liquidator can ask him or her to personally make good any losses incurred by the creditors in that period.”
Here, here we say! Unfortunately in my experience, many directors listen to the person we call the "man in the pub", or people who have a modicum of knowledge and are dangerous advisors.
Common mistakes that distressed company directors make are; trading whilst insolvent, creating preferences, transactions at an undervalue, wrongful trading, failing to submit tax returns and tax payments. The obvious answer is to TAKE ADVICE early and don't listen to the man in the pub, (click the blue links for further easy to follow guidance).
Did you know that if your company is insolvent, that this means the directors have a legal duty to maximise CREDITORS' interests? Check if your company is insolvent here.