In the event that a business goes into liquidation in the event of liquidation, the director is scrutinized to determine if they are responsible for the demise of the business, and if there was any wrong-doing that been committed during their time being director.

These investigations are mandatory and the director has specific responsibilities to fulfill.

We’ve broken down the responsibilities for insolvent directors whose firms are heading towards insolvency.

What is liquidation for directors?

If you are a director and your business is liquidated then you’ll lose the power to make decisions.

The courts will choose an official receiver (OR) who is in charge of taking care of the the liquidation procedure. Directors of the company are required to work to the Official Receiver, and supply the information required to speed up this process.

The official receiver will look into the conduct of the director of the company before granting the winding-up of the company..

Director can be removed from a business in liquidation?

Yes, you are able to remove yourself as director if the company that is liquidating. However any obligations you have to liquidators remain.

If you have signed an individual guarantee while you were a director and the company did not have enough funds to repay loans, you’ll be held responsible and be pursued for repayment. If the loan is not fully repaid, or a settlement agreement is reached then the debt will be your obligation.

It is always recommended that you be taken off of personal guarantees once you’ve left the firm in the lead-up to liquidation.

Could I be investigated if my business is liquidated?

Yes, you could be assessed as a director when your company is liquidated. In the course of liquidation process, the Official Receivers are able to investigate the conduct of directors of the company.

Every director is able to appear in an interview session with the Receiver, in which they will be required to present a summary of corporate affairs and also to discuss the events leading to the company’s bankruptcy.

As Director, you have to prepare for the interview. You must have all pertinent information including statements and accounts.

You could also be asked to appear in court by the Official Receiver to be examined. It is not common and usually only utilized when it is believed that there has been grave wrongdoing on the part of the director.

Are you still director in liquidation?

Yes, directors who are formal are able to continue to act as director of a company after liquidation, provided that there is no evidence of fraud.

There are however a couple of restrictions. You are not allowed to utilize the same or a similar name for your former company since it could result in being prosecuted for criminality and you could be accountable for all obligations of the new business in the event of liquidation.

If you were the director of a business that was in the compulsory liquidation process or in the process of a Creditors voluntary liquidation (CVL), you could be barred by 5 months to form or running any company with the identical or similar name as the liquidated business.

Directorships can personally be held liable for a company’s credit?

Many directors believe that they’re responsible for the company’s debts, but it’s crucial to keep in mind that the debt is owed directly to the corporation.

There are just a few circumstances in which directors can be personally liable. which are:

• A Personal Guarantee
• Overdrawn directors’ current accounts
• Utilizing fraudulent methods to build debt
• Trade fraud
• Pension schemes

Can the director of a liquidated firm be accused of being sued?

The standard rule is that directors of companies cannot be held personally accountable in the event that the company is not able to raise funds to pay you. But, the director could nevertheless be personally responsible.

The liquidators pay themselves first, usually leaving little to creditors to share any gains.

There are some exceptions in which creditors may take on directors personally to recover their losses. Creditors are generally classified with different priority when it comes to repayments. They are referred to by the terms secured and unsecure creditors.

If you fail to consider the creditors’ most favorable interests first can result in the liquidator taking over corporate debt placing you at the risk of filing for bankruptcy.

What do directors have to know when their company is declared insolvent?

If an limited company is insolvent the director has certain responsibilities that directors must fulfill to ensure that everything is in order.

Cease trade

It is essential to talk to an skilled Insolvency professionals such as our team from The Insolvency Experts, to determine whether your business needs to cease operations immediately or not.

It all is contingent on the situation of the company’s finances and how it affects the creditor.

If you’re advised to cease your business, and you persist in doing it and the company fails to be able to pay the debts it owes, then you along with the other directors are subject to be investigated through the Insolvency Service.

Find out information about dangers of trading while insolvent on our blog article.

Transmit all business documents along with assets and documents in the hands of the liquidator

HMRC demands accurate and reliable data as liquidators do when they assume control of the company from directors.

This information will aid liquidators in determining the financial situation of the company and how the company was insolvent and who was accountable for the various tasks.

Meetings of creditors and shareholders

As an administrator, you are required to organize a meeting with shareholders to discuss the ” winding up resolution”. It is at this point when you can decide to name an administrator.

Two weeks after the passing of the resolution the creditors’ meeting will be scheduled. Directors will be required to answer questions related to the situation of the company.

An agreement to be questioned with the liquidator

As we mentioned earlier the liquidator can ask an interview with you and other directors. You must be able to comply to their request by answering all questions honestly and as complete as you can.

This can help reduce the possibility of further actions through The Insolvency Service, and your compliance can expedite the liquidation process.