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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 to be held personally liable, and the directors investigation by the insolvency practitioner.

Directors Liquidation

What Happens to Directors?

Once you’ve appointed an insolvency practitioner (IP) your role as company director ceases. The IP will hande creditor communications, and the business of winding up the company.

Your role really only has one more 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, you will have to submit to an interview with the Official Receiver so that he/she can ask you pertinent question 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 Investigation By the Insolvency Practitioner

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 Disqualification
Directors should be aware that you can be banned from being a director for 2 to 15 years or prosecuted if the liquidator decides your conduct was unfit.

Reusing Company Names

While you are free to seek any directorship once your company has been liquidated, what you can’t do is start another company with the same or a similar name. There are strict laws around this practice – known as phoenixing – that carry a potential ban of up to five years.

Effect 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.
ARTICLE SOURCES

.Gov page on liquidation, including guidelines for directors: https://www.gov.uk/liquidate-your-company/what-happens-to-directors