Directors Conduct
Directors who continue to trade whilst they know their company is insolvent can be made personally liable under the "wrongful trading" provisions for any further debts which their company incurs, if it enters into insolvent Liquidation (Compulsory or Voluntary). Whilst these provisions do not directly apply to Administration, the creditors of an Administration may insist upon a Liquidation "exit-route" where they believe that wrongful trading may apply.
It is vital that directors of insolvent companies seek professional advice at the earliest opportunity.
Both Liquidators and Administrators must produce a D-report on each of a company's directors and a negative report can lead to prosecution and disqualification from acting as a director of a company for up to 15 years. In a compulsory liquidation, it will be the Official Receiver who produces the report and in other cases, it will be the Licensed Insolvency Practitioner dealing with the affairs of the company who must report to the Enforcement Directorate (a department of the Insolvency Service). The Enforcement Directorate must then decide whether or not to prosecute.
Members of the public and creditors can report concerns they have about the conduct of company directors, (even if the company is not insolvent), directly to the Enforcement Directorate. However, if the company is in insolvency proceedings, these concerns should at first instance be brought to the attention of the practitioner dealing with the case.
Obtaining, documenting and following specialist professional advice at an early stage, is one of the best ways that directors can avoid potential liability for wrongful trading or disqualification.
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