John A Waller
Reviewed 29th May 2021.
What Happens To A Director of An Insolvent Company?
What Happens To A Director of An Insolvent Company, once in liquidation?
Even if you have financial difficulties in your business, it can be awkward to seek help from qualified professionals specialising in insolvency. However, it is common for company directors to fight when insolvent. Pride and even fear take control of their decisions. However, the sooner you profit from robust advice, the better your business chances of remaining viable.
As a company director of a limited company, you must. Ensure you avoid wrongful trading. Your company must cease trading as soon as you know it may be insolvent. Failure to do so leaves you and other directors exposed to allegations of wrongdoing when the company liquidates.
We may remove any uncertainty. We briefly outline what the process involves insolvency and its potential implications for you as a company director.
Then, once you have decided to seek an Insolvency Practitioner’s advice, ensure therefore you note everything said.
However, you still hold the office of a director until a licensed IP is then appointed.
Once the insolvency practitioner assumes an appointment, in any liquidation. Then your occupancy as company director ends. The company ceases trading (unless a trading company administration).
As part of the Liquidators duties, the IP will investigate the direct or conduct before their appointment.
Please read How to Liquidate My Company for further detailed guidance.
Transaction at an undervalue of a company asset
A transaction at undervalue happens when a company’s assets are realised for less than their actual value. This can however be traced back to up to two years in the event of a limited company entering liquidation.
Director issues with HMRC
While acting as a company director. It is vital to understand your obligations toward HMRC.
For further reading, please view ‘HMRC Tax debt problem‘.
Wrongful Trading of a limited company
The director continued to trade and therefore incurred more debt after they knew or knew that the company was insolvent.
Please read ‘Directors Duties and responsibilities’ for further reading on wrongful trading.
Unfair Preference of a company creditor
A company operates specific measures that place a creditor in a more favourable position on distribution of assets during a winding up. However, directors of the company must have intentionally carried out such actions.
Many directors are concerned about the implications of liquidating a company with a bounce-back loan.
The third lockdown implication has had severe implications for many UK companies and has not been part of the bounce-back loan.
If your limited company is now failing due to the third lockdown, directors must seek early advice to remove worry while protecting your company’s creditors.
For further reading, please click on Liquidation and Bounce Back Loans.
What Happens To A Director of An Insolvent Company? Does Insolvency affect you?
Limited company status places a legal fence between your personal and company finances. Limited Liability protects directors financially, provided they have acted correctly. So a company usually does not affect them failing. So the company liability provided operates correctly, and no guarantees offered, does not affect your assets.
Insolvency usually involves your business ceasing trading through liquidation or sold through an administration. If you are a sole trader or partnership, you may go bankrupt and lose your personal assets, including your home. The effects of insolvency will have a different effect on each company, so speak to an Insolvency Practitioner before moving forward.
Insolvency Practitioners report on Directors Conduct.
IMPORTANT! No matter what, insolvency sales staff promises you upfront. Insolvency Practitioners are legally required to investigate the conduct of the company’s directors before their appointment. This applies to both liquidation and administration. The report is confidential and is then submitted to the Insolvency Service online for review and possible action. The insolvency services may then decide to take action and consider a director’s ban for up to 15 years, though such a term is indeed rare.
What Happens When A Personal Guarantee Exists?
A personal guarantee presents facts in a more complicated stance. Guarantees, however, breach the corporate veil. When a company director signs a personal guarantee, like a business loan, the holder of the guarantee can use the asset as security. For further reading, click on ‘Dealing with Personal Guarantee Issues‘.
Can Directors Claim Redundancy?
However, the company must have employed a director for more than two years, and was part of the PAYE scheme. The government can redundancy the director. You may then also claim:
- Holiday pay;
- Unpaid wages and
- Other statutory entitlements.
How much tax will I pay on my Redundancy?
If you are made redundant by an insolvent company, the redundancy money you receive remains tax-free up to £30,000. Other than redundancy, however, money received includes payment, notice, or holiday pay, which remains taxed.
Overdrawn Director’s Loan Account.- How is it Affected When Company Insolvent?
Upon the appointment of the liquidator, his responsibility means he will then liquidate and maximise the assets of the company. If the liquidators know, do the directors owe money to the company? Then the overdrawn directors loan account requires paying back.
If you have no complaints or dismissal orders, there is nothing to prevent you from holding a directorship again.