Question 1

How do I know the exact moment my directors duties shift?

Accepted Answer

There is rarely a single clear moment. The law says the duty shifts when you know - or ought to have known - that insolvent liquidation or administration was probable. This is deliberately broad. It means the shift can precede formal insolvency by weeks or months. Seeking professional advice at the first sign of serious financial difficulty is the most reliable way to establish and document where that threshold sits in your specific case.

Question 2

What is a transaction at undervalue?

Accepted Answer

A transaction at undervalue occurs when the company sells or transfers assets for significantly less than their market value - whether for cash, in exchange for something of lower value, or as a gift. A liquidator can apply to court to have these transactions reversed for up to two years prior to the insolvency, or longer where connected parties are involved. The director may be held personally liable for the shortfall.

Question 3

Can I pay off a personal guarantee before the company closes?

Accepted Answer

Not without careful advice. Repaying a debt simply because you have a personal guarantee attached - while leaving other creditors of the same class unpaid - is a preferential payment. The liquidator can apply to have it reversed and the funds returned. The fact that it also benefits you personally makes the preference finding easier to establish.

Question 4

What happens if I have an overdrawn director's loan account?

Accepted Answer

An overdrawn director's loan account - where you have taken more from the company than has been formally credited to you - is an asset of the company in insolvency. The liquidator will require repayment in full. We review directors' loan accounts as a priority in our first consultation so you understand your exposure before any procedure begins.

Question 5

Does resigning as a director stop my liability?

Accepted Answer

No. You remain responsible for decisions made during your time in office, regardless of when you resign. Resigning at the point a company is in serious difficulty can itself be viewed negatively by the Insolvency Service - as an attempt to distance yourself from responsibility rather than address the situation. The appropriate response to a difficult position is to seek advice and act correctly, not to step away.

Question 6

Will I be investigated by the Insolvency Service?

Accepted Answer

In every formal insolvency, the practitioner is required to submit a report on director conduct. If the report identifies areas of concern, the Insolvency Service may investigate further and - where it finds evidence of unfit conduct - apply for a disqualification order. Directors who have acted honestly, taken advice, and kept proper records have nothing to fear from this process. Those who have not, do.

Question 7

Can I start a new business after insolvency?

Accepted Answer

In most cases, yes - unless a disqualification order is in place. You are free to start a new company provided you have not been disqualified. However, strict rules apply around the re-use of a similar company name and the transfer of assets from the old company to a new one. We explain these rules clearly so you understand the boundaries before you take any steps.

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Directors’ Duties When Insolvent