Protect Yourself In The Event Of Insolvency

As the director of a business, insolvency is likely to affect you personally. This can be manifested in terms of physical and emotional wellbeing – it’s not uncommon for health and relationships to suffer as a result of the high levels of stress involved. And in business terms, directors can be held personally liable for significant sums of money. Some types of misconduct can even result in a prison sentence.

Protect yourself against personal liability

To protect yourself against personal liability, you need to be aware of your fiduciary duties as a director and the undertakings you may and may not legally make when insolvent. When a company goes into business administration or liquidation, its directors’ conduct may be investigated and they can be held personally liable for:

  • Wrongful trading – if directors continue to trade, running up debts in the knowledge that they will be unable to pay them.
  • Fraudulent trading – for example, taking deposits for orders knowing that that the business is unable to fulfil them, or giving incorrect information in order to win contracts or obtain credit.
  • Misfeasance – using company money for matters that are not related to company business.
  • Personal guarantees – if you have given personal guarantee to obtain credit for the business, the creditors can claim against you if the business cannot afford to pay them.
  • Preferences – if your business is insolvent, you can be held personally liable if the business pays one creditor in preference to another (you are under a duty to treat all creditors equally). For example, if you paid a family member first, or paid off an overdraft that was personally guaranteed by you, the liquidator could seek repayment.
  • Transactions at an undervalue – you may be held liable if the business transfers assets for a lot less than their market value.

To protect yourself:

  • Monitor how well the business is doing; keep accurate and up-to-date financial records.
  • Don’t keep trading if your company is insolvent unless business turnaround is a real possibility.
  • Don’t write cheques if there is a possibility they will bounce.
  • Don’t take deposits for orders the business cannot meet.
  • Don’t pay some creditors in preference to others.
  • Make sure your views are well minuted at meetings, especially if they differ from those of other directors.

Protect your general wellbeing

When your business is under pressure, you are too. Don’t underestimate the toll this kind of stress can take on your health; take action to deal with it, for example by creating opportunities to take part in activities you enjoy and find relaxing. If you can stay well and deal constructively with stress, you are more likely to make good decisions.

It’s important not be consumed by the business. Remember to prioritise your relationships and your family.

Keep things in perspective. Shutting down your business is the last thing you want, but there are worse things that can happen.

Take professional advice

Having expert advice on the ins and outs of business insolvency can a great relief and support. Professional guidance will also ensure that you comply with insolvency laws. And the sooner you take professional advice, the more likely it is that a positive solution can be found for your company’s financial problems.

Touch Financial offers a free consultancy service for businesses approaching or facing insolvency. Talking to a member of our expert team will put you on track to deal with the situation as constructively as possible.

We’ll make sure we clearly understand your requirements before introducing you to the most suitable lender, insolvency practitioner, or SME business administration service for your needs.

Whatever the outcome for your business – bankruptcy or successful business turnaround – having the right people on your side will be key to managing the process and protecting yourself.

Get in touch with one of our experts right now by calling us on 0845 388 9725.

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