A company is considered to be insolvent when it cannot pay bills on time and/or its debts are greater than the combined value of all its assets.
According to UK law, the directors of an insolvent business are required to act in the best interest of the company’s creditors as a whole. Failure to do so could result in accusation of wrongful or fraudulent trading after a liquidation, administration, or receivership procedure.
Any director found guilty of wrongful trading could face financial penalties, being ordered to contribute personally to the company's assets, and/or being disqualified from acting as the director of any limited liability company in the UK for a period of 15 years.
Any one of the company’s creditors/contributories can file a petition to the Court requesting a directors’ disqualification order, which would disqualify the individual(s) in question from acting as a director for up to 15 years. Keep in mind the court will only grant a disqualification order if there is evidence of wrongful/fraudulent trading or misconduct.
It should be noted that not all liquidations end with directors’ disqualification. In fact, it is a relatively rare occurrence, as directors are only disqualified in about 5% of all insolvency cases.
If your company is going out of business and you’re concerned about the possibility of being disqualified as a director, feel free to contact us with your questions. If you’d rather have a conversation over the phone you can call our directors’ advice hotline (0800 231 6040) between the hours of 8am and 10pm, 7 days a week. Our extensive office network comprises 55 offices across the UK with a partner-led service offering immediate director advice.
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