Insolvency rules must be obeyed

With news that two more company directors have been struck off and banned for six and 12 years respectively from acting as directors, individuals should be aware of their responsibilities in the case of insolvency.

The Insolvency Service investigated the case of one company director, who was banned from running a company for 12 years after being found guilty of laundering cheques for rogue builders, as well as taking a cheque (to be cashed) from a member of the public, with the payment not being honoured, after the company had become insolvent.

Meanwhile, a second director was disqualified from acting as a director for six years after an investigation found that she had made payments to herself and a company consultant, who was a friend, despite knowing that the company was insolvent.

David Brooks, Chief Examiner at the Insolvency Service, said that there is no place in the business community for individuals who act in this manner and that disqualification will remove their ability to trade through a limited liability company.

Under company law, wrongful trading occurs when the directors of a company have continued to trade a company past the point when they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation and they did not take every step with a view to minimising the potential loss to the company’s creditors.

In the case of the second director, she was specifically warned at least twice, not to pay herself ahead of other creditors, and when her firm finally collapsed, it owed unsecured creditors almost £400,000.

These examples show that directors who act improperly can face serious repercussions. Directors who allow their companies to trade whilst insolvent risk becoming personally liable for company debts, as well as being disqualified from running a company.

At Palmers, we are experienced in advising in insolvency situations, so we can provide dedicated guidance on directors’ responsibilities and winding up the business to achieve maximum value and return for creditors.

For more information, please contact us.