In a company liquidation, as a director, how does it affect me personally?

31 August 2010

The man in a pub does not know about company liquidation. It is not true that if you liquidate a company then it means you cannot be a company director again. Having a limited liability company means that the directors generally have limited liability if the company fails, as long as they have acted properly and acted in time.

However, if you fail to act properly and reasonably by continuing to take credit KNOWING that the company cannot repay it, then you may be at risk of personal financial loss. If you do this then you risk being accused of wrongful trading, as defined in the Insolvency Act 1986. If the business is subsequently wound up under compulsory liquidation or creditors voluntary liquidation then the Official Receiver is duty bound to investigate the actions of the directors. If you trade ‘wrongfully’ then you may be personally liable for the company’s debts.

So, voluntary liquidation is the most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don’t act to put the company into liquidation.