Director information hub: Director duties upon insolvency
Directors have specific duties if their company becomes insolvent. These still apply if it is trading or if trading has stopped.
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Duties upon insolvency
A company is insolvent when it can鈥檛 pay its debts. Either by being unable to pay bills when they become due, or through having debts that are larger than the value of its assets.
If you are a director and your company has become insolvent, you still have duties and responsibilities. These include minimising the amount of money owed by the company that wont be repaid.
Responsibilities for directors of insolvent companies
What are those responsibilities?
If your company becomes insolvent聽director鈥檚 priorities shift from the shareholders to the company creditors.
You must:
- protect any assets the company has
- treat all creditors the same - you cannot prioritise one over another
- make sure your company does not worsen the financial position of creditors
- consult with or consider appointing an insolvency practitioner
Company debts
Directors are not normally personally responsible for company debts.
But if the director has been responsible for the company being mismanaged, there are situations where they can become personally liable.
These include but are not limited to:
If a director is uncertain about any actions they are considering taking on behalf of a company they should seek professional advice.