“The group’s recent highlights include advising the directors of a company that provided extended warranties for satellite equipment on the presentation of a winding-up petition by the Secretary of State and the appointment of a provisional liquidator.”
[Chambers UK 2010]
Advice to Directors
Whilst nearly all companies have the benefit of limited liability, the protection for directors and shareholders is often compromised by the giving of personal guarantees and/or granting of security over personal assets (often the director’s home) to banks, finance companies and sometimes key suppliers.
Leathes Prior can assist directors by advising on their potential liability and, as appropriate, by negotiating with the creditor concerned, which may lead to a substantial reduction in the director’s liability. Alternatively we can advise the director on the personal insolvency procedures available to him.
If a company is placed into liquidation, the Liquidator is obliged by law to investigate the conduct of the director whilst he was managing the company’s business and if it is found that the director’s conduct falls below what is reasonably expected of him, he may find himself subject to:
- Director’s Disqualification Orders and Undertakings where the director may be prevented from acting as a director of a company in the future for between 2 and 15 years.
- Wrongful trading where the director may be held liable to pay, from his personal financial resources, some or all the debts of the company.
- Fraudulent trading where the director may be held liable to pay some or all of the debts of the company and may face imprisonment for up to 7 years.
- Misfeasance where the director has breached his fiduciary duties to the company.
- Preference transactions where creditors of the company (including the director) have been preferred by the company to the detriment of other creditors. Did you know, for example, that if the company is insolvent and a director pays any monies into an overdrawn bank account, which facility the director has personally guaranteed, then the director may be held personally liable for that sum as a preference transaction! A director may also be disqualified for such conduct.
- Transactions at undervalue where assets of the company have been purchased from the company by the director or his family at any time in the period of two years prior to the liquidation of the company.
Directors should therefore seek advice as soon as possible to minimise their potential liability.
If you have any enquiries, please contact Adam McCaw or Ina Beurich – or alternatively please call us on 01603 610911.
