A reminder of Directors’ duties amid multiple insolvencies

According to the latest research by the Office for National Statistics (ONS), the number of businesses going into administration in the third quarter of 2019 reached the highest level in five years.

Insolvencies are continuously in the news, with more scrutiny now being placed on the behaviour of Directors leading up towards insolvency.

The Directors of a company have a duty and an obligation to act in its best interests and, if the business is on the verge of insolvency, they must act in the best interest of creditors as a whole.

Where the Directors know or ought to have known that the company could not avoid insolvent liquidation or administration, and allow the company to continue to trade and/or incur losses, they risk personal liability for the company’s debts.

A Director can be banned from being a company Director if they do not meet their legal responsibilities, such as allowing the firm to continue trading when it is unable to pay its debts.

If the Insolvency Service investigates and find that a Director is ‘unfit’, it can fine, prosecute and disqualify the individual, and if they are found to be personally liable, they could lose their home and their reputation.

For example, in 2018/19, 1,242 Directors were disqualified for misconduct, and their details were published online on the Insolvency Service website and their social media accounts in a bid to deter other Directors from going down the same path.

Tim Close, Insolvency Partner at Milsted Langdon, said: “It is important that Directors are aware of their responsibilities within a company, particularly when it comes to insolvency. More scrutiny is now being placed on the actions of Directors and it’s imperative that the best interests of the business are looked after.

“For advice on matters relating to insolvency, speak to our expert team at Milsted Langdon today.”

Posted in News.