Are directors responsible for the company’s debts?

The simple answer is – NO. The only time that a director will become liable for the company’s debts is where the director has given the creditor a personal guarantee in relation to that debt and that creditor receives less than 100p in the pound from the insolvency.

Are directors automatically disqualified from being directors in the future?

Again, the simple answer is – NO. The Insolvency Practitioner (IP) appointed has a duty to report on all directors’ conduct within 3 months of the appointment. If the IP believes that the directors’ conduct warrants reporting for further investigation by the Director’s Disqualification Unit (DDU) then he will submit an adverse conduct report. The IP is not authorised to discuss this with the directors prior to submission.

Matters that are considered to be adverse conduct and therefore warrant reporting include the following:

• Non-payment of Crown liabilities – PAYE/NI and VAT
• Overdrawn director’s loan accounts
• The size of the overall deficiency relative to the size of the company
• Wrongful trading
• Fraudulent trading
• Misappropriation of assets
• Failing to cooperate with the appointed IP

How will I know if I’ve been reported for potential disqualification proceedings?

The IP appointed will initially issue you with a questionnaire shortly after appointment. Once you have completed this and returned it to the IP, he will then consider your replies as well as taking into account any complaints from creditors and any other information gathered from reviewing the company’s records. The IP is not allowed to discuss his report to the DDU with you.

If a clean report is submitted, i.e. one that does not report on adverse conduct, then the IP may well advise you of that. However, if an adverse conduct report is submitted, then the first you will know about that is when the DDU write to you – that could be anytime up to 18 months after the appointment.

How long can disqualification proceedings take?

Any proceedings by the Disqualification unit must be commenced within 2 years of the date that the company went into insolvency. There are two types of proceedings. The first is where the DDU will write to you setting out their case against the director and seeking agreement to voluntarily accept a ban from being a director for a number of years. This method is fairly simple and does not involve a court appearance by the director, thereby saving on costs against you. If, however the director decides to contest the DDU’s claim then the matter will be heard in court. If successful, the DDU will usually look for a longer period of disqualification and also seek payment of their costs.

What to do if the company receives a statutory demand

A statutory demand issued by a creditor against a company is issued under either section 123 or 222 of The Insolvency Act 1986. It gives the company 21 days in which to either pay the sum demanded, dispute the sum demanded or set aside the demand. If a company that receives a statutory demand does nothing with it, then after the 21 days the creditor could then petition the court for a winding up order against the company. If such an order is obtained, then the company’s bank accounts will be frozen immediately and the Official Receiver will be appointed liquidator.

Upon receiving a statutory demand, it is absolutely vital that you deal with it as early as possible and certainly before the expiry of the 21 day notice period. We are extremely experienced at dealing with such situations and negotiating with the issuing party – such work we will usually do without charge.

How do I deal with allegations of wrongful trading?

Insolvency by its very nature will always stir up emotions – people have lost money and sometimes are looking for someone to blame. Creditors reaction on some occasions will be to threaten directors by reporting them to the Police for wrongful or fraudulent trading. Whist creditors have the right to submit such a complaint to the Police, it is highly unlikely that the Police would get involved in civil/commercial matters. This only really happens on high profile cases.

The reality is that any allegations of wrongful/fraudulent trading have to be investigated by the appropriate authority, which in an insolvent case will be the liquidator or the administrator. Whilst there are numerous provisions within the Insolvency Act that deal with such matters, the level of evidence required to support such allegations is usually prohibitive. Such actions are also extremely expensive to fund.

I have an overdrawn director’s loan account – will it have to be repaid?

The simple answer is – YES. However, there may be some issues to take into account that would affect the balance needed to be repaid. Where companies only produce annual accounts and not monthly management accounts, then it possible that the figure shown as outstanding relates to the last filed accounts and that subsequent to that the director may have made some repayments that have yet to be credited against the overdrawn loan account. Equally the director may have made certain payments on behalf of the company from his own funds or by using a personal credit card. Any such genuine payments can be offset against the amount claimed by the IP. It is extremely important that you maintain detailed records of all such transactions and support them with relevant invoices and documentation.

Can I start a new business?

Absolutely – just because your current company has gone into some form of insolvency doesn’t preclude you from setting up a new company.

Can I be a director again?

Absolutely – the only time that you cannot be a director or actively take part in the management of a limited company is if you have received a disqualification ban. If you did act as a director, shadow director or actively take part in the management of a limited company, then you would be committing a criminal offence – the penalties could be severe.

Can I use the same name as before?

This is covered by Section 216 of the Insolvency Act. You cannot use the same name or a name so similar as to suggest the previous name without either obtaining court approval or by writing to all of the company’s creditors and explaining that it is your intention to set up a new company with the old name. This is a fairly complex area of legislation and if you get it wrong, can prove to be extremely costly. We would always recommend that you seek experienced professional advice before contemplating such an option.

How do I buy back the company assets?

As part of the process for preparing for insolvency, the IP will arrange to have the assets professionally valued by his agent. A detailed inventory and valuation will be produced following which it is the IPs’ duty to maximise the realisations for the company’s assets. As a director you have every right to bid for the company’s assets. Be aware though, that in nearly every case, the IP will want paying immediately upon signing a sales contract or upon presentation of a sales invoice.

If you are a company director and have any concerns, get in touch with us today, one of our experienced team will help you. All of our initial advice and guidance is provide free of charge. This advice will be provided directly to you by one of our licensed insolvency practitioners.