insolvency, the more the directors had to be mindful of the creditors’ interests. What are some of the actions which can be brought against directors once a company has gone into insolvency? When a liquidator is appointed, the powers of the directors cease and the liquidator takes over the running of the company. In an administration, the directors may not exercise any management power without the administrator’s consent. The insolvency office holder must investigate how the directors conducted themselves during the relevant time prior to the insolvency and will file a report with the Insolvency Service. Directors can be disqualified for between 2 to 15 years where their behaviour falls short. Weareseeingmoredisqualification orders now, largely due to the fraudulent use of BBLs. A claim can be made by an administrator or liquidator of wrongful trading, which is when a director knew or ought to have known that insolvency could not be avoided and did not take every step to minimise the losses to creditors. Directors (including de facto and shadow directors) can be fined and held personally liable for any deficiency in assets from when they ought to have known the insolvency couldn’t be avoided to the point when the company entered into liquidation or administration. There is also the possibility of bringing a claim of fraudulent trading against the directors, which is a criminal offence with possible penalties of imprisonment and fines. In a liquidation, directors can be liable for misfeasance where a director has misused company assets and/or breached their duties. This too can carry personal liability. Similarly, as part of their investigations the officeholder will review any transaction within specific time periods to see if they can be classified as a preference, a transaction at undervalue or a transaction defrauding creditors, which can all be unwound and the company restored to the position it would have been in had the transaction not taken place. The directors also need to be aware of the status of their directors’ loans. In the event of insolvency, any money owing under these loans will become immediately repayable. “All businesses are facing economic challenges at the moment, with the rise in costs across the board.” Finance Monthly. Bus i ne s s & Economy 21
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