Director responsibilities when a company is in difficulty
Recognise the change in priorities
When a company becomes insolvent, directors need to consider the interests of creditors. Continuing as though only shareholder returns matter can create serious problems. Seek advice where debts cannot be met or the financial position is uncertain.
Keep an up-to-date view of cash, assets and liabilities. Record the information used, advice obtained and reasons for significant decisions.
Transactions needing particular care
- Payments to directors, shareholders or connected businesses.
- Asset sales or transfers below a properly assessed value.
- New borrowing and personal guarantees.
- Taking customer deposits where delivery is uncertain.
- Dividends, director withdrawals and loan-account repayments.
These issues require assessment in context. Do not assume a transaction is safe merely because the director previously funded the company.
Records and cooperation
Preserve accounting records, contracts, correspondence and access information for company systems. If a formal office-holder is appointed, directors must provide the required information and cooperate with the process.
Company debts and personal liabilities are distinct, but guarantees, director loans and certain conduct can create personal exposure. Obtain advice before putting personal assets at risk or starting a replacement company.
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Common questions
No. Limited liability remains relevant, but guarantees and other specific circumstances can create personal liability.
That decision depends on the facts and the effect on creditors. Seek prompt advice rather than assuming trading is always permitted or always prohibited.
No. Disqualification is not automatic simply because a company fails, although conduct may be investigated.
Further reading: official GOV.UK guidance. General information; procedures and advice depend on your circumstances and jurisdiction.