Our experienced team is available to guide you through difficult circumstances and to explain your position, responsibilities and duties as a director. Our first objective will be to find a solution that does not involve a formal insolvency procedure, such as securing business funding if appropriate.
If you require advice in relation to your company’s position, and/or your personal position as a director, we are here to help. Our initial consultation is free and confidential. We can visit your office, home or any location convenient to you, or simply speak to you on the telephone. We will never force you to take action and will advise you of all the available options.
Directors will often incorporate a new company following their old company having entered into a formal insolvency procedure. Although phoenix businesses are given a bad press, they can sometimes offer the best outcome for creditors and save jobs. Where a phoenix company is incorporated following the liquidation of an insolvent company, there are strict legal rules concerning the re-use of the liquidated company’s name which is known in law as a “prohibited name”. In accordance with Section 216 and 217 of the Insolvency Act 1986, a director can be imprisoned, fined and made personally liable for the company’s debts if they breach those Sections by wrongly reusing a prohibited name.
Frequently Asked Questions
Directors Liability for the Company’s Debts
As a general rule, directors are not personally liable for the debts of a company. This is the main reason why directors and shareholders incorporate limited companies, limiting their liability should the company be wound up. A company is a separate legal entity to its directors and shareholders. As such, a company can own its own assets and incur its own debts and liabilities. A Shareholder will only be liable to pay any unpaid share capital, which will usually be a nominal amount.
By incurring additional trading losses, directors can be exposed to personal liability for some or all of the company’s debts under actions of wrongful or fraudulent trading. Therefore, it is important that directors seek advice at the earliest opportunity when they become aware that their company is insolvent.
Directors will often sign personal guarantees, usually to banks, asset finance companies, landlords and certain trade creditors. If you have signed a guarantee, you will be liable for any shortfall the creditor suffers should the company enter a formal insolvency procedure, such as Liquidation or Administration. Where a guarantee has been signed by more than one guarantor, each of the guarantors will be jointly and severally liable. Directors that have signed guarantees can be motivated to continue trading an insolvent company in order to avoid personal liability, resulting in the company incurring greater losses and exposing all directors to claims of wrongful or fraudulent trading.
In the first instance, a director should ask the creditor to provide a copy of the guarantee. If the creditor is unable to produce a copy, they will not be able to enforce it. This is because a guarantee must be evidenced in writing under the Statute of Frauds 1677.