As a limited company director, you’ll want to know exactly what happens if your company goes into liquidation.

Below, we’ll cover the process, the potential for directors be held personally liable, and the directors investigation by the insolvency practitioner.

Directors Liquidation

What Happens to Directors when a Company is Liquidated?

If you’re a company director, your role largely ends when the company is liquidated. The appointed insolvency practitioner (IP) will handle creditor communications, and the business of winding up the company.

Your role as director really only has one final aspect to it which is assisting the IP with the creation of a document known as the Statement of Affairs. This is effectively a summary of the business position, detailing both assets and liabilities. The IP will use it to gauge an approximate return for creditors and he/she will need your help gathering the relevant documents etc.

As part of a compulsory liquidation, directors also have to submit to an interview with the Official Receiver so that he/she can ask you pertinent questions about the events preceding the insolvency. These interviews generally won’t exceed 2 hours.

Once this is sorted, you will need to remain contactable by the IP, but you can now take a backseat, as your directors powers have ceased.

Directors Investigations During Liquidation

One thing you’ll need to be aware of is that all insolvency practitioners have a mandate to investigate the actions of the company directors in the period directly preceding insolvency. They are on the look out for signs of potential directorial misfeasance which we’ve detailed below:

  • Wrongful Trading – This is where you either continued trading even though you knew the company was insolvent, or where you incurred more debts knowing they couldn’t be repaid.
  • Fraudulent Trading – Where a director has knowingly defrauded creditors. This is a criminal offence carrying the penalty of up to 10 years in prison.
  • Transactions at Undervalue – This is when a director sells an asset for less than it’s worth during a period of up to 2 years before the insolvency event.
  • Unfair Preference – Where one creditor, typically a family member or particularly trusted supplier, is intentionally paid over others.
  • Bounce Back Loan Abuse – Most recently, the Insolvency Service has asked IP’s to explore whether bounce back loans have been used inappropriately.

These findings will be compiled into a directors report which the IP will submit to the Department for Business, Energy & Industrial Strategy as part of his process. In that report he/she will not whether he believes any sanctions are due. Where sanctions are recommended a fuller investigation will be triggered before any action taken.

Directors are often concerned about personal liability for corporate debts in liquidation. This should only be an issue in cases where personal guarantees have been signed, or the IP’s investigation yields evidence of misfeasance.

» MORE Read our full article on Directors Personal Liability in Liquidation

What are the Consequences of Liquidation on Directors?

  • Your role will end
  • You will face investigation, but there’s nothing to worry about if you’ve behaved sensibly
  • You are unlikely to be held personally liable unless you’ve signed a personal guarantee or behaved improperly
  • You may be entitled for directors redundancy if you fulfil the criteria
  • Assuming you are not facing directors disqualification, you are free to assume a new directors role once the liquidation is complete, as long as you don’t reuse the same compay name.

What Should Directors be Aware of if a Company Goes into Liquidation?

Our insolvency practitioner Chris Andersen offers the following advice for directors:

  • Understand the law and your statutory requirements as a director to prioritise creditor interests
  • Cease trading immediately
  • Don’t pay anyone in preference to anyone else, or dispose of any assets
  • Keep a careful record of your actions from the point of insolvency
  • Take professional advice and deliver all relevant paperwork to the insolvency practitioner