Helpful Tips

Three Common Questions Asked by Directors of Insolvent Companies

By David Perkins

Am I automatically banned from being a director of another company?

No. There is no automatic ban on the director of an insolvent company taking up another directorship. The insolvency practitioner will investigate the affairs of the insolvent company and report any wrongdoing to the government’s Insolvency Service however, unless and until the IS take disqualification action, the directors are free to act as directors of other companies. Directors should however be mindful of the automatic prohibition on re-using the insolvent company’s name, trading name or a similar name – if re-using the name is desirable, the appropriate legal steps must be taken.

Will I automatically lose my house/other personal assets?

No. Directors can usually rely on the protection afforded by trading through a limited liability company. However, again, the insolvent company’s affairs will be investigated and any wrongdoing could lead to claims being brought against the directors in order to compensate creditors for any losses incurred as a result of said wrongdoing. Directors also need to be mindful of any personal guarantees they have signed and any monies they owe the insolvent company.

Don’t insolvency practitioners just close down businesses?

Absolutely not. A prudent insolvency practitioner will always look at any viable options to rescue the business first. Sadly, many directors do not seek early advice and, as the company’s position worsens, the options usually become more limited. There have however been several occasions in recent times where directors have sought our early advice and, as a result, their company has been able to avoid insolvency entirely.

Many directors do not realise that a licensed insolvency practitioner can take a fresh look at their business and provide pragmatic business advice such as suggested cost savings etc. We also have contacts with access to funding available to assist good businesses experiencing a temporary blip. Unfortunately however many directors do not realise the extent to which we can help and only approach us when the company has reached the point of no return.

In conclusion

Even (indeed especially!) where directors are concerned regarding potential wrongdoing (inadvertent or otherwise) and disqualification, we would encourage them to seek early advice. It is far better to try to identify and proactively deal with any issues rather than await the outcome of a creditor legal action and a resultant forced insolvency – and, after all, initial consultations with us are free and without obligation – there can be no downside for directors to take advantage of this to explore their options.

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