What Will Happen to Me as a Director after Liquidation?

What happens to a director after a liquidation depends on a number of things.

Many company directors believe that if they liquidate a company they won’t be able to run another company afterwards.

As a matter of fact, this is completely wrong in the majority of cases, you can be a director after a liquidation provided there has been no wrong doing. This is just a clear statement of how people formulate things on a particular subject they have little or no knowledge of.

Unfortunately, many directors whose companies are struggling are put off liquidating their company because they feel such action could affect them personally, but the truth is that it won’t.

So how will I be affected by liquidation and how long is it likely to take?

As a director of a limited liability company, you have little risk if the company falls, providing you take the right action at the right time.

Furthermore, you can actually claim redundancy as a director just like any other employee from the government if you have been compliant and you are on the payroll for many years.

But, you will be at risk of personal financial loss or even worse if you don’t act reasonably, fail to take actions at the right time, fail to keep records or if you continue taking credit knowing that it will be impossible for the company to payback.

It’s important you take action as soon as you realise that there are issues and get appropriate assistance for your company, and most importantly, reduce possible risks that may fall on you.

Not taking action as soon as you identify a problem could be classed as wrongful trading, and if a liquidator can provide evidence of wrongful trading, then you will be at a more increase personal risk.

For example, you may face personal liability for the debts your company owes. A good example of wrongful trading is when you take deposits from customers or when you take credit from a supplier when you are much aware that you cannot pay back.

 

Creditors voluntary liquidations

The best way to handle an insolvent company with no future is through a creditors voluntary liquidation. Please be aware that you are at risk as a director of an insolvent company if you fail to act. The longer the delay in liquidating the company, the more the risk.

It’s worth knowing that a Creditors Voluntary Liquidation can take as little as a couple of months if all the paperwork is supplied on time and there are only a few assets to be sold.

If you don’t act, and if the company is eventually liquidated by the creditors (compulsory liquidation as opposed to voluntary liquidation), then the Official Receiver (OR) will be tasked to liquidate the company and such person will look into the activity of the directors and the company over the past 2-3 years. An investigation of this nature is referred to as a conduct report on the directors of the company.

 

Official receivers and liquidations

If the Official Receiver discovers that the directors have traded while in debt and they did not take action, or took credit without any reasonable likelihood of paying back, or did not submit accounts or several offences, then it’s likely you as a director will face personal action.

It should be pointed out that if any of those apply then directors can be held personally liable for the company debts from the onset of insolvency.

This is referred to as “lifting the veil of incorporation,” and when it happens, directors under the protection of limited liability will be held accountable.

Once the veil of incorporation is lifted, you as a director could be liable for VAT, PAYE and creditors monies starting from the period you should have known that there was no reasonable prospect for the company to survive the problem it’s facing.

Also, the directors are likely to face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years; they will pay fines and may lose their personal properties like their homes, or may even go bankrupt.

In summary if you act quickly and have done nothing wrong then liquidating your company will likely have little to no effect on you. It will only affect you if you don’t act in a timely manner and have been up to no good.

What is creditors voluntary liquidation and what can it do for me as a director?

A Creditors Voluntary Liquidation is when the Directors have seen that things are going wrong and decide to liquidate the company instead of it being forced upon them.

The term liquidation means when a company put a stop to trading and the company’s asset are converted to cash or liquidated.

During this period, every other possible liability such as employment liabilities, rent or landlord’s payment to lease companies comes to a stop. 

This could be the end of the company, but it’s possible the business may continue if a phoenix is organized.

Liquidation is an effective/powerful way to bring an end to pressure from creditor(s) and live on with your life.

What if I have signed personal guarantees?

If you have indemnities to lenders or signed personal guarantees, then it’s possible that a company liquidation could call them in if the bank is unable to retrieve its money from the company.

You may not be able to do anything about it, but make sure you don’t delay liquidation decisions in order to prevent a PG being called in; just imagine what will happen to you if you are asked to pay all of the company’s debt.

All banks will reach an agreement to repay PG over time, as long as you and the bank work hand in hand to reduce the bank’s exposure.

One good advice for you, ensure that all tax returns, VAT returns, and annual returns are completed and forwarded, and other “compliance” problems are addressed wherever possible.

These processes are important and will keep you safe as a director. Doing this will show you have been taking the right actions as a director.

I have heard stories of directors claiming redundancy in liquidation

You can claim redundancy from the government if you were employed by the company and made payments through PAYE.

Just so you know, this process is very easy (it will only take you 20 minutes in filling the form and we can assist you with that).

However, because the process is prone to fraud, the HMRC are cutting off operators claiming to be able to recover money without valid “paperwork.”

Find out more about redundancy claims in liquidation here

 

How can Forbes Burton help you?

If you think that you might need to liquidate your company get in touch with us today.

We’ll discuss your situation and figure out the best way for you to move forward and fix the problems.

Call me today on 0800 975 0380 or email me on [email protected]