Skip to main content
Latest news

Understanding your responsibilities as a company director

By 19th October 2017No Comments

The law can be a complex topic but sometimes it’s actually very clear and simple.  If you are a company director you are legally required to stop trading the moment you become aware that the company of which you are a director is insolvent.  There are no ifs, buts or maybes about this, there are, however, six key points it is crucial that company directors understand.

You are a director if you act like one, regardless of what your job title says

In very simple terms, if you exercise any sort of executive control or even influence over a company then there is a strong chance that the law will view you as a director even if your name never goes anywhere near the company paperwork.  This means that you have the same responsibilities as the named directors and are exposed to the same sanctions.  For example, you may be held personally liable for company debts and/or banned from being the director of a company for up to 15 years.

Your company is insolvent if it is unable to make the minimum payments on your debts

Commercial insolvency is essentially the same as personal insolvency.  As long as you can continue to make at least the minimum payment on your debts then you are solvent and can carry on trading.  If you cease to be able to make the minimum payment on your debts then you either negotiate with your creditors until you can or you recognise that you are insolvent and cease trading.

You must treat all creditors impartially

In the eyes of the law a creditor is a creditor and all creditors have an equal right to have their money returned to them.  It’s irrelevant if the loan came from someone in your family or a small business or someone who couldn’t really afford to lend you the money but did it to help you out.  Legally, all creditors have equal importance and equal rights and you must respect this.

You must sell any assets in a reasonable manner

Basically, you should aim to sell assets for as close to market value as possible.  In the real world, if (once) word gets around that a company is in distress and needs to sell then purchasers may drive a hard bargain and this is understandable as long as the process is transparent.  If you choose to offer your creditors your assets in lieu of payment then make sure to remember the previous comments about equal treatment.  This may be a situation for you to take legal advice.

You must conduct your financial affairs transparently

This should go without saying, but under pressure emotions can take over and drive people to actions they would never have taken normally.  Now that you know you are the director of an insolvent company, you have to be very clear on the fact that every decision you take and every action you make is up for legal scrutiny.  This is exactly the time when you need to keep calm and make sure absolutely everything you do is both legal and ethical.

You must address the problem as best as you reasonably can

Accepting the reality of your insolvency is only the start of the journey to winding up the company.  You need to progress along the route to its conclusion in such a way that you achieve the best possible outcome for everyone connected with the company and even though your range of options may be limited, it’s important to look at them carefully and pick the best one for your particular situation.  Above all, remember that there are far worse situations in life than winding up a company.


Blackpool: 01253 299 399 | Carlisle: 01228 558 899