Liabilities of Directors

We provide advice on levels of personal liability and options to ensure that you are adequately protected. Mark Wilkinson, Head of Insolvency & Credit Management Services, answers some of the questions you might be asking yourself regarding this matter.

The business may be heading for liquidation and I don’t want to lose my personal assets– what can I do?

Whilst the creditors of your company will liaise with the insolvency practitioner as to whether they are likely to be paid, it is important that you as a director seek advice at an early stage so as to avoid being personally liable for wrongful trading and/or misfeasance.

A liquidator may bring a claim against a director if he has allowed the company to continue to trade when he knew or ought to have known that there was no reasonable prospect that the company would avoid insolvent liquidation and he has failed to take steps to minimise the company’s losses.

Our team can work with you and the right insolvency practitioner to provide advice to you and your board as to whether the business can be rescued. If it cannot and liquidation is inevitable then we will advise you on your position as a director. The earlier the advice is taken and you take steps to minimise the loss to creditors then you will minimise your risk of personal liability.

I am setting up a business and I want to make sure that I limit my own liability to future debts – how can I do this?

It is important that you regularly review the financial position of the business and if appropriate hold regular board meetings which should be minuted. If due to an unforeseen event or a change in the market your profit drops off or you start to suffer cash flow problems then you should seek advice from our business recovery and insolvency team.

I understand that if my company goes into liquidation that I am not able to use the old company name?

Yes this is correct but there are a number of exceptions. Pursuant to Section 216 Insolvency Act 1986 if your company enters into liquidation then the starting point is that you as a director are restricted to acting as a director or operating a business with the liquidated company’s name for a period of 5 years. If you act in breach of this restriction you commit a criminal offence and may be personally liable for the debts of your new business.

There are a number of exceptions to the restriction. Firstly, you may serve a notice on all of the creditors of the insolvent company. Secondly, you may apply to court for an order granting you permission to continue to use the prohibited name. Lastly, you will not act in breach of Section 216 if your successor business has been actively trading and has used the name for a period of 12 months ending with the day of when your insolvent company went into liquidation.

Our business recovery and insolvency team often advises directors on this area which can be quite a minefield. It is important that you do not act in breach of Section 216 as the consequences are serious.

Our team

Mark Wilkinson

Partner

Head of Insolvency & Credit Management Services

Direct Line +44 (0)113 297 1862

Lucy Clark

Associate

Business Recovery & Insolvency

Direct Line +44 (0)113 297 3794