As a director of a Company you have a legal and fiduciary duty of care to act in the best interests of your company and its shareholders. However, the moment your company is deemed to become insolvent, you are under a legal duty to protect the interests of creditors. Going forward, the primary purpose of the company and its directors must be to achieve the best return for creditors and other stakeholders. We have listed below the most common questions directors ask us when considering the options around formal insolvency procedures and the answers.
Q - As a director can I purchase company assets?
You can personally purchase company assets from the company or the Liquidator. It is essential that an independent professional valuation is been obtained and any sale is done at arms-length. A company can also buy assets from the Company or the Liquidator.
Q - Can I be held personally liable for the company’s debts?
A limited company is a separate corporate entity and usually, if you are a director (or acting as a director), you are not personally liable for paying the company’s debts and liabilities. This means that if the limited company does not pay its debts and a creditor takes court action, only the company assets are at risk.
However, you may be personally liable for the following debts:
- Your own PAYE and National Insurance payments.
- Any income tax you have not paid on drawings taken from the company.
- VAT – under schedule 41 of the finance act – if you have deliberately under declared your VAT.
- Any personal guarantees you have given for the company (usually to banks, finance companies, landlords and major creditors). This is when you sign an agreement to say that if your business cannot pay the money back, you will pay it back yourself.
Q - After liquidation, can I start a new limited company and be appointed as a director?
Yes, you can. There are no statutory restrictions which stops a person from starting a new limited company or from acting as a director of a company.
The fact the company is in liquidation does not automatically disqualify you. The Liquidator is however obligated by statute to prepare a report under the Company Directors’ Disqualification Act 1986 on the conduct of every person who is or was a director or shadow director, at any time in the three year period prior to insolvency. This may subsequently lead to disqualification if any director is considered unfit to act by the Secretary of State.
Q – If I start a new company can I use the same or a similar name to the company in liquidation?
If you are considering re-using the same or similar company name speak to one of our insolvency practitioners and we can recommend you to one of our trusted legal advisors so you can obtain the appropriate independent legal advice.
Q – If I liquidate my company will I have to face the company’s creditors?
In April 2017 new Insolvency Rules were introduced and changed the requirement for a liquidator to automatically hold physical creditors’ meetings. There are now a range of other decision-making procedures available specifically in a Creditors Voluntary Liquidation.
Q - Can I resign as a director of an insolvent company?
Yes, you can resign as a director, however your obligations to the Liquidator to co-operate will continue. As you were a director of the company in the three year period prior to liquidation, the Liquidator will still include you in his statutory director’s disqualification report to the Secretary of State. You will need to consider whether resignation is the best action for the company.
Q - Do the directors of a company subject to a liquidation need to file annual accounts and annual returns?
Once a company goes into liquidation and the statutory liquidation documents are registered at Companies House, there is no need to file annual accounts and annual returns. However, until Companies House receives notification that the liquidation has commenced the annual accounts and annual returns will still be deemed to be due. This is one of the points that will be considered by the Secretary of State when considering whether disqualification action is appropriate.
For advice and guidance on how to protect your position as a director and avoid personal liability please call one of our team on our freephone number 0808 168 7540