If a company is in debt or enters insolvency proceedings, director disqualification may be one of the concerns facing the business’s senior leadership.

Disqualification can last for up to 15 years and means that you can’t be a director of any company registered in the UK or an overseas company with links to the UK. You also can’t be involved in the ‘forming, marketing or running’ of a company.

Running an indebted company or entering liquidation does not mean that the company’s directors will automatically be disqualified.

If a company goes into liquidation, there is usually no assumption of wrongful trading. But the Insolvency Service may choose to investigate a company or any of its directors if the company is involved in insolvency proceedings or if a complaint is made against the company.

Directors can be banned if an investigation finds that they haven’t met their legal responsibilities when running a company.

This is known as unfit conduct, and it can include:

• Allowing a company to continue trading when it can’t pay its debts. Continuing to trade when a company is unable to pay its bills and has debts that exceed the combined value of assets can be deemed to be wrongful trading.
• Not keeping proper company accounting records.
• Not sending accounts and returns to Companies House.
• Not paying tax owed by the company.
• Using company money or assets for personal benefit.

Options if you are run a company in debt

If you run an insolvent company, the first thing you should do is take professional advice in order to consider all your options. This may include the company ceasing to trade. Make sure you notify HMRC and creditors of this.

Once an insolvent company ceases trading, there are some options.

Creditor Voluntary Arrangement (CVA)

A CVA is a repayment agreement between a company and its creditors. If creditors agree to a CVA, a company may be able to keep trading while making lower repayments on any debt. Creditors will often accept the repayment terms, as it means they will get some of the money they are owed.

Voluntary liquidation

In a voluntary liquidation, the control of a company is passed to an insolvency practitioner. The insolvency practitioner will act as liquidator and sell off company assets to repay creditors. A voluntary liquidation is a good option if you want to close a business without being accused of wrongful trading. If you do not choose to liquidate your business, creditors can initiate court proceedings which will result in compulsory liquidation.

Administration

Putting a company in administration means that it is protected from legal action by creditors as nobody can apply to ‘wind up’ your company during the administration process. When the company appoints an administrator, they will look at the company’s financial position and try to stop being liquidated. If they can’t prevent liquidation, then they will try and pay as much debt off as possible from company assets.

Got a question about business debt? Speak to one of our advisers today. Call: 0800 611 8888.