Directors carry the risk of personal claims. The risk of claims against directors stem from creditors, shareholders and increasingly the Insolvency Service. We review the risk of claims against directors and represent them at investigations, creditors meetings and before the Insolvency Service.
Please do call us to discuss your position. We do provide initial scopes and fee estimates.
Avoiding a claim on insolvency
Where a company is entering into (or approaching) administration, being wound-up or liquidated the directors’ duty shifts from acting in the interests of the company to acting in the interests of the creditors, with a view to minimising losses. However, it is not clear when exactly this duty shifts across to the creditors during ‘the twilight zone’ before insolvency. The shift does not depend on a snapshot of the company’s financial position but rather the directors’ rational expectations of what the future may hold.
As soon as a director becomes aware that a company is approaching financial difficulty they should take steps. This applies collectively as a board and on an individual level.
- There is a team that can handle all aspects from dealing with shareholders, creditors through to avoiding litigation. The expertise covers tracing assets and freezing injunctions along with disclosure of information.
- We review the position under personal guarantees.
- Skilled in working with all types of directors from private companies to directors of quoted companies.
Key areas where claims against directors can arise
The main risks for directors on insolvency are:
Fraudulent trading arises when directors of a company allows it to incur debt when they know there is no good reason for thinking that funds will be available to repay the amount owed when it becomes due or shortly afterwards. This is a criminal offence which can strike if the director ought to have known about fraudulent trading.
Wrongful trading is where a director ought to have known that there was no reasonable prospect that the company would avoid going insolvent and thereafter the director failed to take every step he ought to have taken, with a view to minimising creditors’ losses. Unlike fraudulent trading, it is not necessary to show intent. Directors may be liable to contribute to the company’s assets. This also applies to shadow directors and sometimes non-executive directors.
If a director or former director of an insolvent company is found to have engaged in conduct which makes him unfit to be concerned in the management of a company, the court can order that he be disqualified from being a director for between two and fifteen years.
Where a director has given a personal guarantee and the lender is concerned he will attempt to dissipate assets which could be used to satisfy the debt, the court may freeze his assets in this jurisdiction, pending further proceedings.
The court has wise discretion to determine the extent of a director’s liability. Whilst the court can apportion liability in any of claims against directors – there is no guarantee.