What You Need to Know about Directors Investigations in a liquidation but were afraid to ask!
If the worst comes to the worst and your company goes into liquidation then an investigation of the Directors behaviour will be conducted. This happens because a Director’s responsibilities, as set out in the Companies act 2006, state that a company must be run in the best interest of the company and its creditors, rather than for personal gain.
An investigation into the directors’ conduct and the company’s affairs happens in every Liquidation. The Company’s books and records are reviewed by the liquidator and the directors are requested to provide all the relevant information.
The possibility of disqualification arises if the liquidator’s requests for information or a lack of answers reveal potential financial misconduct such as:
– Paying some creditors in preference to others, especially associated creditors
– Incurring further debt when they ought to have reasonably known that the company was insolvent
– Using monies which should have been set aside for tax to continue trading
– Disposing of assets for less than market value
– Failure to provide goods or services which have been paid for
– Failure to co-operate with the liquidator
The Liquidators Process
In order to understand how we get to this situation, the following gives you a brief outline of the process.
The liquidator will review the books and records of the company and each director will be required to complete a detailed questionnaire relating to their roles within the company.
If anything is found which needs more detailed explanation the liquidator will ask the company’s directors for clarification. Failure to cooperate would result in a public or private examination of the directors. This doesn’t happen that often.
Once the liquidator has completed his or her report, it is submitted online to the Insolvency Service who then reviews it and takes further action only if it seems it to be appropriate. Every case is considered individually. Mainly whether there is sufficient evidence of wrongdoing, and if Director’s disqualification would be in the public interest. This has to be commenced within 2 years of the date of liquidation.
If a director is either taken to court and disqualified, or voluntarily agrees to be disqualified, it means that they can’t be a director of any UK company, or an overseas company with connections to the UK. In addition, they can’t be involved in the formation or running of a company, even if they are not formally a director. Disqualification may also prevent them from working in certain roles, such as accountant, solicitor, barrister or pension trustee.
The period of disqualification runs from between 2 and 15 years, depending on the seriousness of the offences. The period of disqualification will usually be less if a director agrees to this voluntarily, rather than being disqualified by the court. Once disqualified, it is possible that a director can apply to court for leave to be exempted from their disqualification due to exceptional circumstances.
Food for thought
The level of liquidations which lead onto a disqualification has historically only been around the 3% mark. The Insolvency Service’s ethos is not to penalise every liquidating director, but only the small number who it decides have acted against the interests of their business’ stakeholders.
Directors need to be vigilant in ensuring that they run their Companies in compliance with the Company’s Act because, as always in any business, one needs to be ready for the worst to happen whatever the cause.
If you have any questions about directors’ investigations, or would like to talk about this in more detail then please email me at email@example.com or call on 01494 786000 and 07961 116321.
DISCLAIMER This blog / article is for information and interest only. It is not a substitute for full professional advice, which will take account of the specific and individual circumstances surrounding your matter. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.