When a company becomes insolvent, attention can quickly turn to the conduct of directors. Directors have a duty to assist in the insolvency process, but they must at all times be aware of potential claims that can be made against them personally. Many liquidators aim to increase recoveries and their fees by making allegations against directors. When an insolvency practitioner makes a claim against a director, he is likely to include as many different claims as he can. We have decades of experience in protecting directors and with it an excellent track record.
Claims relating to over drawn directors loan accounts
Many directors may have run up over drawn loan accounts, expecting them to be cleared at year end or upon the next dividend, only to find no dividend is paid before the company becomes insolvent. When an insolvency comes unexpectedly the directors loan becomes a target for an insolvency practitioner. At ORJ we don’t just examine the background of an alleged loan in detail, we seek to examine on whose advice it came into existence. All to often a businesses trusted accountant will have advised a directors loan was a legitimate method of saving or delaying tax, without explaining the risk to individuals. Where that has happened ORJ will advise on the prospects of making a claim against former accountants.
Where a director accused of breaching statutory duties
Directors may be the subject of claims arising from an alleged breach of their statutory duties under the Companies Act 2006. These alleged breaches may appear easy to establish after an insolvency but do not take into account the many competing pressures that a director may have had, especially where the business is bought down by the sudden actions of a third party, withdrawing a contract, or, credit or just failing to deliver what was contracted to be delivered.
Preferences
A director may be accused of giving or receiving a preference to himself or a preferred associate as against other creditors. A preference usually occurs when one creditor is paid in full and where other creditors, who rank alongside it, are not paid at all. There are detailed rules that relate to preferences and the facts of every case must be checked carefully. For example, it’s not usually possible to give a preference if the company is solvent at the time of the transaction. The solvency or insolvency of the business months later will not be the determining factor.
Transactions at under value and breaches of Section 423 of the Insolvency act.
Company directors may be accused of selling assets to cheaply or even giving them away. Again, these claims can involve complex considerations of fact and law. For example, writing off a debt may have genuine commercial reason to it. However, if as a director you are accused of this kind of wrong doing you must be especially careful, as it could lead to proceedings that you be disqualified as a director.
Directors’ interviews under oath
Insolvency practitioners, IPs, are permitted to ask questions of directors under oath. Former directors should never attend these meetings alone. IPs must only ask questions where its reasonable to do so. Directors are entitled (save in rare circumstances) to have sight of all of the documents that will be put to them at an interview, in advance. Its not usually unreasonable for directors to ask for advance sight of the questions as well. You should speak to us if before agreeing to attend an interview.
Disqualification of directors
Disqualifications are rare these days, simply because through 2008 and the pandemic and now the energy crisis so many businesses have failed, through no fault of their own directors. However, if you lose the right to be a director the ban is rarely short and once the right to be a director is lost, so is the right to trade your own limited company independently. Remember when conducting discussions with a liquidator it does not pay to be unnecessarily difficult. Again we can call on years of experience to assist you.
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