What Happens to Company Directors in Liquidation?

What Happens to Directors of an Insolvent Company?

When a company goes into liquidation and a liquidator is appointed, directors face significant shifts in their roles and responsibilities. Here’s what to expect:

1. You’ll lose control of the company: Once an insolvency practitioner (IP) is appointed as liquidator, directors lose control over the company or its assets.
2. You’ll have to help the liquidator: Directors must cooperate with the IP by providing any requested information, handing over the company’s assets, records, and paperwork, and allowing the liquidator to interview them if necessary.
3. You might face consequences: If the liquidator determines that a director’s conduct was unfit, they can face severe consequences. Directors can be banned from holding directorship positions for a period of 2 to 15 years.

What Are My Legal Responsibilities As A Director During Liquidation?

As a director of a company undergoing liquidation, you still have important duties, even after the IP takes control of the company’s affairs. Here are your key responsibilities during this process:

Can Directors Be Investigated as Part of the Liquidation?

Yes, directors can absolutely be investigated as part of a company’s liquidation process. The liquidator’s role is to study the directors’ actions and decisions, especially in the period leading up to the company’s insolvency.

This investigation is crucial to identify any potential instances of wrongful trading, breach of fiduciary duties, or fraudulent or preferential transactions that may have occurred under the directors’ watch.

If the liquidator finds evidence of misconduct or negligence, they can hold the directors personally liable and recover assets for the creditors.

Can a Director Resign During Liquidation?

Resignation as a director during liquidation is possible, but it doesn’t mean the director won’t still have obligations to the liquidator. If the director signed a personal guarantee and the company lacks funds for loan repayment, the responsibility remains with them.

Leaving the company does not mean leaving behind the liabilities tied to it. Ensuring proper removal from any personal guarantees before liquidation is a prudent step.

Can a Director Be Made Personally Liable for Debts in a Liquidation?

Directors who have acted responsibly and in compliance with their duties are unlikely to face any negative outcomes. However, if the investigation uncovers wrongdoing, such as trading while insolvent, failing to keep accurate financial records, or not acting in the creditors’ best interests, it could lead to legal action or disqualification from serving as a director in the future.

Typical cases where directors could face personal liability: if you’ve:

• signed personal guarantees
• are found to have continued trading during insolvency without minimising loss to creditors (wrongful trading)
• were involved in fraudulent activities leading to the company’s debts (fraudulent trading).

Overdrawn director’s loans must also be repaid because this money is essentially the company’s, not the director’s personal funds, and needs to be returned to help pay off the company’s debts.

If misconduct is found, directors can face disqualification, in addition to personal liability for the company’s debts, and, in cases of fraudulent trading, criminal prosecution.

» MORE Read our full article on What Happens to My Overdrawn Director’s Loan Account in Liquidation?

Can a Director Be Made Bankrupt Because of Their Company’s Liquidation?

Yes, a director can be made bankrupt as a result of their company’s liquidation if they have provided personal guarantees for the company’s debts and the company is unable to fulfil these debts.

Can a Director Run a Business Again After Liquidation?

Yes, a director can run a business again after a previous company’s liquidation. There is no automatic disqualification for directors simply because a company has gone into liquidation. However, certain conditions and restrictions may apply.

Can a Director Start Another Business After Liquidation?

Starting a new company after liquidation is possible for a director, but there are important considerations to keep in mind:

• Under the Insolvency Act, using the same or a similar name to the liquidated company is restricted.
• If a director has been disqualified for conduct in the lead-up to the liquidation, they cannot act as directors or be involved in the formation, management, or promotion of a company during the disqualification period.

Can a Director of a Liquidated Company Be Sued?

Yes, directors of a liquidated company can be sued, particularly in cases involving misfeasance, wrongful trading, fraudulent trading, or if they’ve provided personal guarantees for company debts.

Expert Advice is at Hand

If your company is facing liquidation, seek expert advice and support as soon as possible.

At Company Debt, we specialise in providing insolvency support for company directors. Our team of experienced professionals can guide you through every step of the process, and help you understand your options and responsibilities.

Whether you’re dealing with overdrawn director’s loans, concerned about personal liability, or unsure about starting a new business after liquidation, we’re here to help.

FAQs on Company Liquidation and Director Responsibilities