Liquidators report on Directors Conduct

What is a Directors’ Conduct Report

What is a Directors’ Conduct Report? Author: John A Waller. Consultant. Reviewed: July 21st, 2024.

What is a director’s conduct report? The director conducts reporting services by the officeholders appointed as the liquidator. However, it is often referred to as a company’s report on conduct. The aim remains to investigate how directors dealt with corporate debt while trading with management decisions in part of their financial management that may have been detrimental to the company’s and its employees’ creditors.

The insolvency practitioner appointed as liquidator (office holder) in the liquidation of a limited company remains obliged to examine how the directors managed the company before their appointment. They must submit a confidential report under section 7A of the Company Directors Disqualification Act 1986 only to the Insolvency Service on behalf of the Secretary of State and not to the directors or other parties. Once received, the Insolvency Service, on behalf of the Secretary of State, will consider whether further action is required.

However, the Company Directors Disqualification Act 1986 covers the director’s conduct and whether the company has failed due to bad management or fraud.

This service is only for the office holder (licensed insolvency practitioners) and authorised employees. It is not made public or distributed to creditors.

The Secretary of State has the final say on the outcome of the reports.

What may be considered misconduct?

  • trading while insolvent to the detriment of creditors;
  • deliberately depriving creditors of assets;
  • acting fraudulently;
  • not keeping or producing relevant accounting records.
  • Causing significant harm to customers, suppliers, etc.
  • breaking the law, e.g. fraud, scams;
  • having a significant irregularity in its affairs;
  • some Companies Act breaches;
  • other serious misconduct.

How can I report a Director for Misconduct?

If you need to report a company director for misconduct, “such as falsifying accounts,” it is crucial to notify Companies House. In cases involving criminal behaviour, the police may be necessary. Your actions can help maintain integrity in business practices.

Three Types of Director Conduct Reporting Service by the Liquidator

The liquidator is still required to complete a report on the conduct of directors (directors’ conduct reporting service). The information helps the Insolvency Service only.

Three types of reports exist: – 

  • A D2 final report, completed when the liquidator deems their inquiries ended with nothing to inform;
  • D2 interim report, completed so the appointed IP may need added time with their inquiries;
  • D1 report: This report highlights concerns the IP believes contemplated company mismanagement in the running of the failed company by the previous company directors.

The insolvency service examines the confidential director’s report online for review; therefore, they can consider the director’s business record.

However, the insolvency service’s primary concern is whether directors have colluded and face disqualification for a certain period.

In the case of the D1 report, the liquidator treats directors individually concerning conduct. 

If directors have not colluded, the director at fault will not bring down the rest.

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How long does the Insolvency Service Have to Respond?

The insolvency service has two years to conduct inquiries. The purpose remains to determine whether any action is necessary, leading to a disqualification order for directors. If they believe there is a reason to do so, they can appeal to obtain a court order for an extension beyond this period. Much of this timeframe involves gathering evidence, including talking to former directors of the Company, to ensure the validity of the evidence obtained.

Once they have decided, they can appeal to the High Court for the director’s disqualification.

What happens to company directors when a company is liquidated?

Upon liquidation, the company’s realised assets will be distributed to creditors. Normally, directors receive no proceeds from the Company as it remains insolvent.

Suppose you were a company director in compulsory or creditor’s voluntary liquidation CVL. You are not allowed to set up, manage or promote a limited company with the same or similar name as your liquidated company for five years. These include the registered name and any trade names.

Can any assets of the company director be appropriated from a limited company?

When a limited company cannot meet its obligations, company directors receive limited liability protection. Essentially, directors ordinarily cannot be held personally responsible for a limited company’s debts, however, if they signed a personal guarantees on behalf of the company then they are liable.

What is a director’s conduct report? – Can I lose my house if my business goes into liquidation?

As director of a limited liability company, you, therefore, have limited liability protection against the debt of a limited liability company. Therefore, after the insolvency and liquidation of your company, you do not usually have to worry about insolvency personally or the loss of your home.

Further Help: –

For further assistance with business rescue and insolvency services, please contact HBG Advisory at 0330 056 3120.

Contains public sector information licensed under the Open Government Licence v3.0.

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