Why do directors delay taking Insolvency Advice?
Many company directors in the UK operate companies on a wing and a Prayer.
They have no real knowledge of how to operate a limited company legally.
Meeting many companies as we do with financial issues, we observe major issues that we are shocked to hear.
So, how may we help clients avoid insolvency?
I list just some of the thoughts I have heard over my career from individuals in no order of preference:
- My Accountant Said?
- What is an Accountant?
- My Accountant died?
- It’s the bank’s fault?
- What do I do?
- Their all thieves in suits.
- I can’t afford to speak to them?
- My business plan failed.
And so on.
Notice no acceptance of blame!
What then may we do to help bolster British companies coming out of:
- The coronavirus COVID19 Pandemic;
- dealing with a potential no-deal BREXIT?
- Oh yes! Crown Preference as well!
Well, as professional, do we not need to band together and help.
Are we to remain as fee chasers rather than Advisors?
Perhaps training courses should be readily available for directors before actually signing. FORM
So moving on at pace.
How many directors really understand.
As a director, you must perform a set of 7 duties under the Companies Act 2006.
For further reading, please view Directors Duties and Responsibilities.
These still apply if:
- You’re not active in your role as a director;
- someone else tells you what to do;
- you act as a director but have not been formally appointed;
- you control a board of directors without being on it.
You must follow the company’s constitution and its articles of association. These are written rules about running the company, agreed by the members, directors and the company secretary.
The constitution sets out what powers you’re granted as a director and the purpose of those powers.
You must act in the company’s best interests to promote its success. It would help if you considered the:
- Consequences of decisions, including the long term;
- interests of its employees;
- need to support business relationships with suppliers, customers and others;
- impact of its operations on the community and environment;
- company’s reputation for high standards of business conduct;
- need to act fairly to all members of the company.
If the company becomes insolvent, your responsibilities as a director will apply towards the creditors, instead of the company. A creditor is anyone owed money by the company.
It would be best if you did not allow other people to control your powers as a director. You can accept advice, but you must use your own independent judgement to make final decisions.
Exercise reasonable care, skill and diligence
You must perform to the best of your ability. The more qualified or experienced you are, the greater the standard expected of you.
You must use any relevant knowledge, skill or experience you have (for example, if you’re a qualified accountant).
Avoid conflicts of interest.
You must avoid situations where your loyalties might be divided. It would help if you considered the positions and interests of your family to avoid possible conflicts.
You should tell other directors and members about any possible conflict of interest, and follow any process set out in the company’s articles of association.
This duty continues to apply if you’re no longer a director. You must not take advantage of any property, information or opportunity you became aware of as a director.
It would help if you did not accept benefits from a third party that are offered to you because you’re a director. This could cause a conflict of interest.
The company may allow you to accept benefits like reasonable corporate hospitality if it’s clear there’s no conflict of interest.
Interests in a transaction
You must tell the other directors and members if you might personally benefit from a transaction the company makes. For example, if the company plans to enter a contract with a business owned by a member of your family.
There are other duties you must perform as a company director. For example, you must:
- not misuse the company’s property
- apply confidentiality about the company’s affairs
Did you get that?
Many do not!
“As a director, you’re legally responsible for running the company and making sure information is sent to companies house on time”.
Perhaps now we may understand the real problems? Is it:
- Cash Flow?
- Staffing Issues?
- Suppliers Delays?
- Machinery Breakdowns?
- Health and Safety?
- The Weather?
- Just not knowing?
Company directors really have no idea in many cases how to therefore perform as a director, to enjoy the protection of limited. Liability.
And yet we expect all of the above and more, yet do we professional really help?
Medium to larger companies in the UK, do benefit from services provided by national practices. However, the UK SME may not be so well served.
Perhaps we all need to sit back and think in what way we may support the smaller business—failing which, the UK economy will drag its feet after January 1st, 2021.
For those who wish to take matters further, please then make contact with HBG Advisory, we are ready for 2021. Remain, safe everybody.