Advice for Directors

Over 1,500 directors a year are disqualified from acting as directors after having placed their company’s into Administration or Liquidation.

But this is only the thin edge of the wedge, because thousands more directors are pursued (and sued!) by insolvency practitioners every year for actions that they undertook whilst managing their businesses in the lead up to insolvency. Robson Scott specialise in advice for directors who are being pursued by other insolvency practices, or other institutions, such as banks. Some of the more common placed actions that we are able to assist directors in fighting are:

Overdrawn Directors’ Loan Accounts
One of the most common offences committed by directors. In short, rather than drawing remuneration or dividends, directors have taken money against their loan account (usually for tax reasons), which has left it overdrawn, and therefore it becomes a debt, repayable back to the company’s liquidator / administrator. There are usually good reasons for the money being taken this way, and it is likely that we will be able to assist in building a case to show that if not all, at least some of it should be written down, reducing the amount you have to repay.
Preference Payments
A payment to a creditor is likely to be a preference (especially when it was made to the directors, their family or friends!), if it was made prior to the insolvency with the effect of putting that person into a position which left them in a better position within the insolvency than they would have done had that payment not be made. It’s not uncommon for liquidators and administrators to look to recover the full amounts of the payments from the people they were made to. However, it is quite a technical point, and specialist advice for directors should be sought before you commence negotiations, as there are various legal issues that should be considered before the validity of a preference claim can be proved.
Unlawful Dividends
If dividends have been made out of a company within a two year period prior to administration or liquidation, and if the company did not have distributable reserves showing in its accounts at the time the dividends were made, then these may constitute unlawful dividends, and the insolvency practitioner can request repayment of the full amounts paid. Some unlawful dividends can be explained by reference to the accounts prepared at the time, so it’s important to seek advice before agreeing any repayment.
Transactions at Undervalue
Prior to an insolvency, if a company enters into a transaction and receives significantly less in value than what it has given away, then the recipient of the transaction can be sued to make up the difference in value. A director who facilitates such a transaction can also be held personally liable for misfeasance / breach of duty. To guard against such actions, it is imperative to ensure that there is a proper third party valuation of the sold property at the time of sale. If this wasn’t done at the time, we can advise on retrospective valuations, and other ways of mitigating any potential loss.
Wrongful Trading
Wrongful Trading If it can be demonstrated that the director knew or ought to have known that there was no prospect of the company avoiding insolvency, then the director may be open to a claim brought by the Liquidator for such contribution to the company’s assets as the Court thinks proper in relation to the company’s shortfall. It can be quite difficult to prove certain aspects of a wrongful trading claim, so seeking specialist advice is advised.
Use of Prohibited Names
Insolvency Legislation has quite strict rules on the re-use of a liquidated company’s name (or one that is ‘similar’ to it). If the process for re-using a name similar to the liquidated one is not correctly followed, then it can be cause for disqualification proceedings against the directors involved or they can even be held personally liable for the new company’s debt should that become insolvent. If you are considering using a similar name, or are already but have yet to follow the correct procedure, then contact us, and we will take you through the necessary steps to avoid being held liable.
Director Disqualification
Both liquidators and administrators are obliged to prepare a report on the conduct of directors within 6 months of the date of insolvency. This report is sent to the Insolvency Service who then decides whether its contents require taking action under the Company’s Directors’ Disqualification Act 1986 (“CDDA”). With careful and expert negotiation, disqualification can be avoided or at least reduced in term. Early instruction to a firm like ours will strengthen the chances of a more positive result.

If you want advice on any of the above please contact Eamonn Wall on who will be happy to provide a confidential consultation.

Other Topics

Business RescueBusiness Shutdown | Creditor Help | Tax Problems