The Insolvency Service has reported that there has been a 25% increase in the amount of director disqualifications since last year.
Figures show there were 1,208 director disqualifications in England, Wales and Scotland in 2013/14 up from 969 in 2012/13. The increase in disqualifications is the first since 2010. There is also a 19% increase in the amount of disqualification proceeds issued by the Insolvency Service.
The increase is likely the result of a tougher stance being taken on rouge directors by the Insolvency Service. At the very least it is a stark reminder to company directors to act in accordance with the duties of their role and to take their responsibilities towards their company and its creditors seriously.
The responsibilities of a company director are:
- try to make the company a success, using your skills, experience and judgment
- follow the company’s rules, shown in its articles of association
- make decisions for the benefit of the company, not yourself
- tell other shareholders if you might personally benefit from a transaction the company makes
- keep company records and report changes to Companies House and HM Revenue & Customs
- make sure the company’s accounts are a ‘true and fair view’ of the business’ finances
- register for Self Assessment and send a personal Self Assessment tax return every year
There are serious and potentially life altering ramifications for failing to act in accordance with the responsibilities of a company director especially if the company falls into an insolvent state.
Things to take into consideration are:
A creditor with a personal guarantee will pursue the guarantee should a limited company find itself in financial difficulties. Whilst the life of a company might come to an end by way of formal insolvency procedures such as Creditors Voluntary Liquidation or being subject to a Winding-Up order, the creditor can still rely on the Personal Guarantee to look to recover any sums still outstanding from the person that gave that guarantee.
Directors may be prevented from holding a responsible post for up to 15 years if the Insolvency Service deems them unfit to be concerned in running a limited liability company.
Personal Liability for Wrongful Trading
Failure to take advice and implement appropriate procedures can make the directors potentially personally liable for the company debts as a result of the wrongful trading provisions in the Insolvency Act 1986. The amount the directors are likely to be liable for if found guilty is the actual amount that creditors have lost as a result of continuing to trade when they should have known the company was incapable of surviving in its current format.
Recovery of an overdrawn Directors Loan Account and Dividends
If your limited company should enter into Liquidation, the Liquidator will look to realise any assets. It might not have occurred to you but if you have an overdrawn Director’s Loan Account, this will be considered an asset of the Company and will be vigorously pursued by a Liquidator for the full amount that is overdrawn.
Fines or Imprisonment
Breaking the terms of disqualification can impose a fine or imprisonment
If you think your business may be insolvent or if you have concerns regarding any of the possible dangers to directors above then it is important you seek professional advice as soon as possible. Focus Insolvency Group are licensed insolvency practitioners and are able to offer free impartial advice to business owners and individuals alike, contact us today.