Do’s And Don’ts For Directors

For any medium or small business, administration and other insolvency procedures can be complex – if you have never been involved in business insolvency before, it can seem overwhelming. There are, however, some clear do’s and don’ts for the directors of any company facing insolvency.

Don’ts

  • Don’t keep trading once the business is insolvent, unless you’re sure there’s a good chance you can avoid liquidation.
  • Don’t write cheques or arrange further credit when you know the business won’t be in a position to make payment. When a business is in financial difficulty, incurring further debt can be evidence of wrongful trading.
  • Don’t accept orders and take deposits when you know the business will not be able to fulfil them.
  • Don’t make promises to creditors that you know you are not in a position to keep. Reneging on promises will only make the situation worse.
  • Don’t lie to the bank or to your creditors.
  • Don’t try to pay some of your creditors off in preference to others.
  • Don’t ignore the evidence of insolvency – creditors sending warning letters, business accounts being filed late, and judgements against the business, for example.
  • Don’t procrastinate and delay; the quicker you take action or advice, the more chance that business turnaround is still possible.
  • Don’t resign. If the company is insolvent it’s your duty as a director to implement an insolvency procedure.
  • Don’t bury your head in the sand – it’s impossible to deal with things you can’t see. The situation might not even be as bad as you fear.
  • Don’t limit your options – consider even the most unpalatable options.
  • Don’t waste time apportioning blame. Even well run businesses with committed directors can run into financial trouble. And if you believe one or more directors have acted to the detriment of the business, the business administration process involves an investigation that will reveal any misconduct.

Do’s

  • Do act as quickly as possible. As soon as you suspect there is a problem, take steps to clarify the situation, speak with other directors and take advice from professionals.
  • Do make sure the rest of the board is aware of your concerns so they can take appropriate action. Hold regular board and management meetings from thereon.
  • Do ensure that accurate minutes are kept of all board meetings (and carefully filed) so there is a record of board activity in relation to the issue of insolvency. If the company fails, you will need to be able to demonstrate that the board has acted correctly.
  • Do make a record of all the important or difficult decisions that are taken. If taken outside of minuted meetings, write a memo to the directors explaining the decisions.
  • Do keep accurate and up-to-date accounting records – make sure you have a clear and detailed picture of the business’ financial situation, its assets and liabilities.
  • Do ensure that if any of the company’s assets are sold, the true market value is received for them.
  • Do submit tax returns and accounts on time, and pay taxes as and when they are due.
  • Do respond to petitions within the appropriate timeframe, or the petition may be advertised and the business’ facilities frozen.
  • Do think about possible sources of new funding, and draw up a schedule for achieving new funding.
  • Do be honest – with staff, customers, creditors and the bank. And above all, be honest with yourself about the situation.
  • Do make a plan for dealing with the business problems in a positive way and get your directors and management to support it.
  • Do get professional advice as quickly as possible – and keep a record of the advice you receive.

This list provides basic guidance to directors in a business insolvency situation. It’s a good start. Taking advantage of a free consultation with Touch Financial would be another positive move.

Touch Financial specialises in putting struggling businesses in touch with the people who are most suited to help. If you believe that your business is viable, we can introduce you to the right lender, business turnaround expert or SME business administration service. Alternatively, if liquidation is the most appropriate course of action, we can ensure you meet the right business bankruptcy expert to guide you through the process.

Speak with one of our experts now on 0845 388 9725.

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