The world is a challenging place right now. With the Corona (covid-19) pandemic having a significant impact right across the globe, businesses across all sectors are finding themselves in a totally unprecedented scenario.
As we speak, the Government is trying to introduce measures to help save businesses and boost the economy during this turbulent time. Sadly, not all companies will make it through this testing time, in fact, many are already having to make redundancies and even close their doors.
But, if the worst does happen, what are your responsibilities as a director if your company becomes insolvent?
If your company becomes insolvent, in other words, you can’t pay your debts, you have certain responsibilities as a director. And it’s important that you meet these responsibilities to avoid any accusations of wrongful or unlawful trading, penalties or director disqualification further down the line.
Most importantly, you need to act responsibly to avoid any personal liability for the company’s debts.
As soon as you realise your company is insolvent, it is your responsibility as a director to stop trading. This means, you must stop sending out orders, issuing invoices, and paying your staff. You also mustn’t apply for any further finance.
Insolvency practitioners have a legal mandate to investigate your behaviour in the lead up to company liquidation. If they find evidence of wrongful trading, you could receive a disqualification order, preventing you from serving as a company director for up to 15 years. Worse still, if fraudulent trading is proven you could face more serious penalties, including fines and even a prison sentence.
The next step is to call a meeting of all shareholders and a virtual meeting of creditors or a deemed consent procedure. If the liquidation of the company is voluntary, shareholders must vote for the company liquidation. At least 75% of shareholders must vote in favour.
Statement of Affairs
As Director, you will be required to prepare a Statement of Affairs in Insolvency. This acts as a handover document for your insolvency practitioner, ensuring they are fully aware of the business’ situation, including a list of employees, creditors, and suppliers, as well as debts.
Appoint an insolvency practitioner
At this point, you are legally required to appoint an insolvency practitioner.
Inform Companies House
Once the liquidation has been confirmed, the liquidator will need to inform Companies House using the official documentation. This will also need to be advertised in the official journal of public record, the Gazette, within 14 days.
Deliver all books, assets, and records to the liquidator
It will be your responsibility to deliver accurate, up-to-date records and books to the liquidator. These can be seized by force if you do not comply.
You may also be asked to attend an interview with the liquidator. If this is the case, you will be legally obliged to attend.
Directors’ Loan Accounts
If the company has an overdrawn director’s loan account, this will be classed as a company asset and will be called in by the liquidator.
Even if the directors’ loan has been written off, the liquidator can reverse the accounting entry to ensure that the directors are held liable.
It’s a worrying time for many businesses. But we’re here to help. If your company is experiencing financial problems as a result of the Corona pandemic, get in touch to discuss your current situation and the options available. Our skilled and experienced team will help you find a solution.
Please call us now on 0330 159 8080 for a FREE initial consultation.