13 June 2019: If a company is insolvent, a director has a fiduciary duty to act in the best interests of the company creditors. Human nature being what it is, this doesn’t exclude the director from feeling a sense of ‘but what about me’?
First and foremost it is worth repeating that the duty of directors of an insolvent company is to its creditors should be held paramount. As a rule of thumb, a director is unlikely to find themselves on the wrong side of the insolvency legislation if they have stayed true to this duty.
We are aware that directors are usually concerned that an insolvency practitioner (“IP”) has a duty to investigate their conduct. This is indeed true but the parameters of such investigations may not be well understood. As outlined in the statement of insolvency practice (SIP) 2 (the SIPs being the best practice guides for insolvency practitioners) during the initial assessment of their investigations they should consider …Click here to read the full article …
‘the information acquired in the course of appraising and realising the business and assets of a company, together with any information provided by creditors… and decide whether any further information is required or appropriate.’ And goes on to say ‘In every case, an office holder should make an initial assessment as to whether there could be any matters that might lead to recoveries for the estate and what further investigations may be appropriate.’
The main point being that the IP has a focus on achieving the realisation of company assets and investigations are made in light of what actions can assist such realisations. The role of the IP is not to ‘catch out’ directors by forensically examining every decision they have made in the course of running a business.
Following their investigations the IP is required to submit a conduct report to the insolvency service. The insolvency service will evaluate the content of this report to assess whether it warrants action to be taken to prevent someone from holding a directorship in future. There are a number of specific areas which can result in a director being banned from holding office, these may not necessarily be the matters which a director has given the greatest consideration and we are always happy to discuss these at any initial enquiry meeting. Please note that taking professional guidance will offer you some reassurance as to what you can and can’t do when a company is insolvent.
Therefore, if you are the director of more than one company, having been the director of an insolvent company does not automatically preclude you from being a director of another. However, findings of misconduct can lead to a ban from acting as company director.
Here at BRI we understand that the issues summarised in the paragraphs above can be much more complicated in real life (what exactly constitutes misconduct?, etc.) That is why we are always willing to hold an initial meeting with potential clients for no cost, during which concerns in respect of the business and their individual position can be explored - and you can be assured that we will provide the right advice first time every time regardless of the fee outcome for ourselves.