Brabners Chaffe Street Solicitors - Corporate Services

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Essential Do`s and Don`ts for directors facing financial difficulty
21/05/2009

Directors of companies that may be on the brink of insolvency need to do all they can to avoid the risk of liability for wrongful trading under Section 214 of the Insolvency Act 1986:

Do

· Obtain professional advice in relation to any major decision taken by the company. It is also good practice to document any advice given and keep a record

· Hold regular board meetings to discuss the position of the company. Board minutes should be detailed and a record of all decisions kept

· Do consider all possible sources of alternative or additional funding for the company

· Do draw up a timetable by when financial milestones such as new funding should be achieved

Don`t

· Let the company incur any new substantial liabilities until further funding has been secured. Where a business is struggling, incurring further liability (and thereby possible loss to creditors) can be evidence of wrongful trading by directors.

· Wait for winding up petitions to alert you to financial problems. However, when petitions are filed, to avoid the petition being advertised the directors must be sure that payment is made in the appropriate time frame. If not, the company`s facilities may be frozen.

· Ignore events such as creditors putting pressure on the company, late filing of company accounts or judgements being entered against the company. These could be evidence in insolvency, which a reasonable director should have known about.

· Delay in raising problems with the rest of the board. Directors should share any information regarding the affairs of the company with all of the directors so that they are aware and can make appropriate decisions and take appropriate steps.

· Resign to avoid the problem. Directors must take every step to minimise potential loss to creditors and if the company cannot continue to trade they should properly implement one of the insolvency procedures rather than walking away from the company.

To arrange a meeting, or speak to one of our insolvency and recovery professionals, please call Adam Ryan on 0151 600 3000.


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