Advice and Guidance for Directors

We all go into business to succeed; however, there are times when businesses unfortunately fail.

It is important to be aware that decisions directors make pre-insolvency, can have serious repercussions for them post-insolvency.

Under normal trading circumstances, a director’s prime duty is to act in the interests of shareholders. However, when a director fears that the company may become insolvent, his primary purposes changes to ensuring the best result for creditors.

Once appointed, liquidators and administrators are obliged to investigate all directors’ conduct and the company’s transactions.

A report on all directors’ conduct is submitted to the Department for Business Innovation & Skills (DBIS). Following an investigation by DBIS, if applicable, directors can be disqualified and prevented from operating in the formation, promotion and management of companies for up to 15 years.

Directors can be held personally liable to certain transactions and ordered to repay funds to the company for the benefit of creditors.

These types of transactions include preferences and transactions at undervalues. Directors must also ensure that the company does not fraudulently or wrongfully trade.

We recommend that directors seek specialist professional advice early from Bailams to establish all available options, increase the chances of the company’s survival and help minimise the risk of personal liability.