A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Your Role During Liquidation
When a company enters liquidation, directors lose control of the company - the liquidator takes over. However, you remain under a duty to cooperate: to hand over books and records, provide information about the company's affairs, and assist the liquidator as reasonably required.
Most directors have nothing to fear from this process. A liquidation is not a reflection of dishonesty, and the majority of directors are not subject to any finding of misconduct.
The Director Conduct Investigation
Every liquidator has a statutory duty to review the conduct of the directors in the period leading up to insolvency. This investigation is routine - it happens in every liquidation. The liquidator will consider whether:
- There is evidence of wrongful trading - continuing to trade when you knew, or should have known, there was no reasonable prospect of avoiding insolvent liquidation
- There is evidence of fraudulent trading - carrying on business with intent to defraud creditors
- You have an overdrawn director's loan account that must be repaid
- You have misapplied company money or property
Where misconduct is found, the liquidator can report to the Insolvency Service and, in serious cases, seek to recover money from directors personally.
Personal Liability
In most cases, a director is not personally liable for the company's debts. The limited company is a separate legal entity. However, personal liability can arise where:
- You have signed a personal guarantee
- You have an overdrawn loan account
- The liquidator establishes wrongful trading
- You have been guarantor for company tax debts in certain circumstances
Director Redundancy
Many directors don't realise they can claim redundancy pay when their company closes. If you have been an employee of the company (on the payroll) for at least two years, you may be entitled to:
- Statutory redundancy pay
- Notice pay
- Holiday pay
- Outstanding wages
These claims are paid from the National Insurance Fund via the Redundancy Payments Service, and the money can often fund the liquidation itself.
Can You Be a Director Again?
Yes - a liquidation does not, by itself, disqualify you from acting as a director in future. Disqualification only follows where the Insolvency Service brings proceedings for unfit conduct and a court makes an order.
Speak to a Licensed IP
If you're worried about your position as a director, early, honest advice is the best protection. Our Manchester-based practitioners will explain exactly where you stand.