If your company is experiencing financial distress it is imperative to place the interests of your creditors first. This protects them from further financial loss and enables you to meet your legal obligations as a director.
This video explains why this is so important, and offers professional advice to help you take the right steps. The potential implications of trading wrongfully when insolvent are serious, and you also need to consider the possibility of personal liability as a director.
When your company enters insolvency you must stop trading straight away and seek assistance from a licensed insolvency practitioner (IP). Being insolvent does not necessarily mean the company has to close, however, and various options can remain available to you.
It is always important to be open and honest with your creditors, and particularly so if you owe money to HMRC. The tax body is typically a large creditor in company insolvencies, and has the power to close down businesses quickly if they believe payment is being deliberately withheld.
Taking on further debt or credit should also be avoided unless advised by a licensed IP. Even if you believe the funds will help you trade your way out of financial difficulty, you could worsen the position of creditors and face accusations of misconduct.
This video also explains the protection that is offered to directors by the limited liability structure of their business, and situations where this protection can be removed – if your actions have contributed to creditor losses, for example.
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