News
10 December 2008
Creditor Concerns ?- Take care to avoid personal liability.
If cash is tight, as a director of a limited company you may be concerned about your personal liability to the company’s creditors.
Section 214 of the Insolvency Act 1986 can impose personal liability for ‘wrongful trading’ if the person knew or “ought to have concluded” there was no real prospect of the company avoiding insolvency.
If you should find yourself in a tight corner, then here are a few do s and don’ts, (which are just as useful to consider before you reach that point):
Do
- Make sure that all directors attend regular board meetings and everyone fully understands the financial status of the company.
- Ensure that the minutes are properly documented, agreed and circulated as they may be used as evidence in the future.
- Speak to us to obtain advice, before making any major decision. It is a good idea to get this advice in writing.
- Talk to your finance team and draw up a list of all possible sources of funding for the business and a strict timetable for when the funding levels must be met. It is important to stick to this timetable closely.
Don’t
- Incur any significant new liabilities without funding in place.
- Ignore warning signs from creditors, the late filing of accounts or judgements being entered against your company
- Keep quiet and delay raising your concerns with the board
- Wait for the winding-up petition to arrive – directors need to be pro-active in managing the problem.
- Resign in the belief that you can avoid involvement.
As soon as a director believes that there is ‘no reasonable prospect’ of a company avoiding insolvency it is important to take every step to minimise losses to creditors. It is important that financial information and key decisions are documented as they may be required to provide evidence that you were not involved in ‘wrongful trading’.
If you would like to discuss this further, or would like advice concerning your own or your company’s position, please contact Simon Woodings on 01782 205 000 or email simon.woodings@beswicks.com.
Disclaimer
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published .Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.
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