Can you be the director of a limited company after liquidation?

Starting again after liquidation

Thousands of company directors liquidate their businesses in the UK every year, and it’s understandable to worry about the impact it may have on your future. However, in most cases, even the directors of insolvent companies can continue to be the directors of other existing companies or incorporate and run a new business. 

There are a couple of exceptions when you may not be able to form a new company in the future or continue to act as the director of an existing business. If you acted unlawfully when running the business or your actions led to the company’s failure, you could be disqualified from being a director of a limited company for between two and 15 years. You also cannot be a company director without the court’s permission if you’re bankrupt.

What does the insolvent liquidation process mean for directors?

Insolvent liquidation enables company directors to close failing businesses and manage their debts in a responsible and legally appropriate way. As part of the process, the liquidator will investigate the conduct of the directors in the three years leading up to the liquidation and scrutinise transactions. They will want to see whether the directors have acted in the best interests of the company and its creditors. If they find examples of unlawful trading or misconduct, director disqualifications can come into play. 

Insolvent liquidation can also carry a risk of bankruptcy. If you do not act in a way that prevents further losses to your creditors (parties you owe money to) or engage in activities that worsen their position, you could be made personally liable for those losses. That could lead to bankruptcy if you cannot pay what you owe. There’s also a risk of bankruptcy if you provide personal guarantees for company borrowing that the business is unable to repay.

“After submitting my '60 Second Test' I received a complimentary Insolvency Options guide packed full of useful information. The team of insolvency specialists phoned me back in less than 10 minutes after reviewing my details and guided me through the next steps. Really helpful! Thank you Sophie!”

Patricia 

 

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Sophie Schofield
Business Debt Expert

When can you be disqualified from acting as a director?

Here are some examples of the type of conduct that could lead to a disqualification and impact your ability to run a business in the future:

• Continuing to trade when the company is unable to pay its debts
• Failing to keep proper records
• Engaging in fraudulent activities, such as taking credit that the company cannot repay
• Making preferential payments to certain creditors (such as business partners and family members) ahead of others
• Misusing company funds
• Failing to cooperate with the liquidator

Adhering to your legal duties as a director and seeking advice from a licensed Insolvency Practitioner as soon as you know the company is insolvent will reduce the risk of a directorship ban.

Are there any restrictions on new companies after liquidation?

If you are not disqualified or bankrupt, the only restriction you’re likely to face when becoming the director of a new company after liquidation is around the business’s name. 

According to Section 216 of the Insolvency Act 1986, you cannot give a new business the same or a similar name as the liquidated company for five years without the court’s permission. If you do, you could face a fine, imprisonment or both. 

The purpose of this rule is to prevent a director from incurring debts and then liquidating a company, only to start a new company with the same name that’s free from those debts. The only exceptions to this rule are if:

• You get permission from the court to use a similar name
• The new company has been trading under the same or a similar name for 12 months before the liquidation
• You buy all or a large proportion of the liquidated company through a Pre-Pack Administration, or the liquidator agrees to sell you the name  

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Are you ready to liquidate your company?

If you want to liquidate your limited company but are worried about the impact it may have on your future, do not hesitate to contact our team. We will explain your options, discuss the potential consequences for you as a director and help you act in the right way. 

As licensed Insolvency Practitioners, we can liquidate the company on your behalf and provide expert guidance throughout. Get in touch for a free consultation or arrange a meeting at your nearest office.