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What to do when director disputes and disagreements lead to insolvency

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What to do when director disputes and disagreements lead to insolvency

Reviewed: 10th September 2018

When you are working closely with another individual, particularly on a joint business venture, it is almost inevitable that disagreements will occasionally happen. This is part and parcel of life, and in the vast majority of cases, these disagreements will be quickly forgotten and cause no lasting damage.

However, in some instances these disputes can be long-running and can threaten the future of the company you have worked so hard to make a success. When these disagreements lead the company towards the brink of insolvency, action needs to be taken – and quickly.

How disputes can lead to insolvency

Typically this happens when directors have conflicting ideas about how the business should be run, or where the future of the company lies. If both parties are resolute in their own views and refuse to compromise or concede to the others opinion, this can cause operations to grind to a standstill and the quality of output to decline. This can impact the company’s finances surprisingly quickly, which unfortunately often only serves to exacerbate the existing problems between directors. 

Your duty as company director

When a company is insolvent, directors have certain duties and obligations. One of these is to place the interests of creditors above those of directors and shareholders. Therefore, regardless of the ongoing disputes between directors, these differences need to be put aside while the company’s issues are dealt with. This is not just best practice; it is the law. Failure to prioritise creditors, or to actively engage in any action which may worsen their position (such as continuing to trade and running up further debt), could see directors being investigated for wrongful trading and risk being disqualified from acting as a director for a period of up to 15 years.

When one director wants to liquidate and the other does not

We often see instances where one director has had enough and wants to walk away from the business, while the other director is keen to continue running the company. In theory this can be achieved by the director who wants to leave simply resigning from their position and leaving the remaining director in charge. However, in reality it is rarely this simple.

The departing director is often wary about handing over full control to the remaining director and would instead prefer the company to be fully closed down knowing that all outstanding liabilities have been taken care of.

What should I do if I am in this position?

If you are in this situation, regardless of whether you are the one who wants to keep the company active or the one who would prefer to close it down, it is important to remember your responsibilities and obligations as a company director. Doing nothing is not an option. Left alone, the situation is only likely to get worse unless you are all able to reach a mutually agreeable decision as to the company’s future.

By speaking to a licensed insolvency practitioner, however, both you and your co-director will be able to receive an objective view of your situation and understand the options out there to allow you both to move on while doing what is best for your company and your creditors. Consulting a licensed insolvency practitioner demonstrates that you are placing the interests of your creditors above your own ensuring that you are adhering to your responsibilities as director.

Be warned that should you continue to run your business while knowingly insolvent not only do you risk your company being forcibly wound up by a creditor, but you must then also be prepared for the investigations which will occur as a result of this. Essentially, if your business is in trouble, you must put your differences aside and place your company and its creditors first.

How Real Business Rescue can help

Real Business Rescue has a network of over 70 licensed insolvency practitioners, We have an extensive network of 72 offices offering confidential director support across the UK. When it comes to business insolvency, there is little we haven’t seen before. No matter how bad you think your situation is, there is a solution out there for you and we can help you find it. Call our expert team today on 0800 644 6080 to arrange a free no-obligation consultation with an insolvency expert.

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