Ensure directors are aware of potential liabilities At a time of imminent insolvency, directors face substantial repercussions if found to have breached the law or their duties. It is worth noting that all directors in a company have the same responsibilities and the law does not differentiate between directors on the basis of their titles e.g. a sales director has the same responsibilities and obligations as a finance director. The position is complex and often conflicting, for example employee consultation versus keeping the
company’s demise confidential to maximise asset realisations. Professional advice should be sought as falling foul of your duties, whether deliberately, misguidedly or merely naïvely, has the same consequences which can be reputationally and financially expensive. Unfortunately, ignorance is no defence.
The most likely risks that can result in personal liability for directors at this time are:
Continuing to trade when insolvent, and by trading, increasing the losses for creditors. Wrongful trading Failing to act in the best interests of the company. For example using company money or assets for personal benefit. Misfeasance Disposing of assets of the company below their true value. Transactions at undervalue Risk of disqualification under the Company Directors Disqualification Act, for example, failing to keep or maintain proper accounting records. CDDA risks
Putting a creditor in a better position than other creditors, such as making payments to the creditor. Preferences Carrying out business (or specific transactions) with the intent to deceive or defraud creditors. Fraudulent trading If an employer anticipates making twenty or more employees redundant in a period of 90 days or less, it’s a legal requirement to complete an HR1 form and submit it to the Redundancy Payments Service. Non- compliance is a criminal offence. HR1 form
Further risks that need consideration in specific circumstances:
Scope for personal liability in circumstances where a director of an insolvent company has set up a new company or companies to carry on the business under a similar name following a liquidation. Phoenix company provisions
In circumstances where there have been multiple insolvencies in a short period of time and HMRC has been a substantial creditor in each, HMRC can issue a notice to make a director personally liable for outstanding tax liabilities. HMRC scope for personal liability
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