In another of this week’s posts, we discussed the new creditor compensation rules that came in on 1 October 2015. The changes give the court the power to order a disqualified director to pay compensation to creditors who have lost out financially as a result of their conduct.
The new rules are designed to level the playing field and ensure that creditors, who typically would have received very little of the money they were owed in the event of a company liquidation, are not short-changed as a result of a director’s misconduct.
In the case of company insolvency, it is the job of the liquidator to firstly distribute the assets of a business, before reporting any evidence of unfit conduct to the Department of Business, Innovation and Skills. It is the liquidator’s job to act in the best interest of the company’s creditors. At Jameson, Smith & Co., our priorities are different. Our first responsibility is to you as the director of a limited company. We work to protect your interests in the event of insolvency and ensure you are not made personally liable for compensating your creditors.
Your personal protection is our priority
Our job is to reduce those unpleasant surprises that can sometimes arise due to a lack of knowledge surrounding insolvency situations. By contacting our experienced team of turnaround practitioners at the earliest possible opportunity, we can ensure you take every step to avoid personal liability for any of the company’s debts. This includes being made personally responsible for compensating your creditors.
Compensation orders can only be sought in cases where the unfit conduct of a director has led to a direct loss to creditors and no, or insufficient action has resulted from the insolvency process.
Therefore, it is essential that you act in the best possible way during, and in the lead up to the company insolvency.
As a company director, you must…
- Keep all your accounting records up to date – Maintaining your accounting records and taken into account future expenditure is essential, as the earlier any financial difficulties are recognised, the easier it is for our team to rescue the company and keep you trading.
- Maintain good corporate housekeeping – Any important decisions you make regarding the business should be recorded, along with justification for the decision, to protect you from criticism at a later date.
- Personal guarantees – It’s all too easy to make rash decisions when you’re anxious about the future of your business, but personal guarantees and charges on the property should only be given as a last resort.
- Do not invest personal funds – You should not invest any more of your personal funds into the business if it is no longer viable and if you are unsure seek help now.
- Contact your creditors – Rather than burying your head in the sand, it is essential you keep your creditors informed about the situation.
- Keep track of your cash flow – You need to have a clear grasp of your cash flow situation, this includes exactly what must be paid out, as well as what’s due in.
- Stop making payments – Businesses that are struggling financially should not make payments to creditors until they have a clear plan about how to proceed.
- Act fast – Burying your heading in the sand will not make the situation go away. If you think your business is insolvent, or you want to turn your business around before it becomes insolvent, contact us immediately.
Any misconduct on the part of a company director or an officer at this point may lead to restrictions being imposed, which could result in you being made personally liable for compensating creditors for the losses they have incurred. Unlike an insolvency practitioner, one of our main aims is protecting directors from personal liability. For more information about avoiding the potential problems associated with insolvency, please get in touch today for a confidential, no-obligation consultation. Call 08000 746 757 to speak to one of the team now – free and no strings attached.