Does my company need Winding up?
Liquidating a company means converting the company’s assets into cash, to pay debts. Due to recent changes in insolvency rules, this can be a fairly straightforward process. Insolvency processes have been updated and the old style creditors’ meeting where a director had to attend in person has been replaced with different processes, See recent changes to insolvency processes.
The Business Debt Advisor team understand taking the decision to close a business is a very difficult one. You also need to consider the impact on you personally if the business fails especially if you have provided personal guarantees to the bank, creditors. We will consider both the company and your personal position and provide candid advice and help.
If I am the director of an insolvent company, can I act as a company director again?
Yes, the fact the company enters into any insolvent process – liquidation, company voluntary arrangement or administration does not automatically prevent you from acting as a director again in the future. As the director of an insolvent company your conduct will be subject to routine review, but if you have acted responsibly and made sure you have tried to minimise the loss to creditors, there should be no further action taken against you.
See Do’s and Don’t’s of acting as a director
As a director, can I purchase the assets of the Company?
Directors’ are not prevented from setting up a new company (or business) following the winding up of a previous one. You can purchase the assets, goodwill, customer lists etc but the liquidator must show that these assets have been adequately marketed, and that you have paid a fair price.
Can we start trading again using the same name, or similar name, to the insolvent company?
No, S216 of the Insolvency Act provides that any individual who has been a director of a company in the 12 months prior to the liquidation is automatically prevented from being involved in the formation, promotion or management of another company with a name which is the same, or so similar as to suggest an association, unless you have complied with specific exceptions set out within the Insolvency Rules. The exceptions are:-
Where a company (“successor”) acquires the whole, or substantially the whole, of the business of an insolvent company, under arrangements made by an insolvency practitioner acting as its Liquidator, or Administrator, the successor company may use the name, providing that they give notice to all creditors’ of the insolvent company, and place an advert in the London Gazette.
Directors can subsequently join the board of the successor, and if this process is followed correctly, will avoid any restrictions on the re-use of the company’s name. It is very important to take advice, as it is easy to get this wrong.
Where directors’ of the successor company apply to Court for permission (leave) to re-use the name of the insolvent company, and permission is given.
However, there are strict timescales involved, the application to court must be made no later than 7 days’ from the date on which the insolvent company entered into liquidation, and leave must be granted by the court no later than 6 weeks from that date. The court is likely to consider if the successor company is well capitalised, and if it has adequate working capital.
Where directors’ have previously registered a company with a similar name, and that company itself has been in existence for more than 12 months prior to the liquidation of the insolvent company, the name can be reused. The only barrier to this would be if the successor company had been dormant, at any time within the previous 12 months, within the meaning of section 252(5) of the Companies Act.
The restriction on directors being involved in a newco that trade with a similar name as explained above lasts for 5 years from the date of liquidation of the oldco. If you want to consider setting up a newco, do take advice. S216 is nasty if you get it wrong. It is a criminal offence and you could find yourself liable for the debts of the newco.
When can I be held personally liable for the company debts?
The structure of a limited company makes it a separate legal entity, with no liability implied for you as a director. The only reason that you may become personally liable is if you have expressly provided an indemnity or guarantee or where the business has not been conducted property, and there are failings in your conduct as a director.
If you have signed a personal guarantee in favour of a company creditor, you may be called upon to pay any shortfall, up to the limit of the guarantee, plus interest. Engage with the creditor early and consider the need to take advise on your personal position from a licensed Insolvency Practitioner.
This is allowing the company to continue to trade, whilst insolvent, in the knowledge that there is no reasonable prospect of avoiding insolvent liquidation. If a liquidator suspects that this has occurred, he (or she) may apply to court for an order that the directors contribute towards the company’s assets. Unless you can prove that you took every step to minimise the potential loss to creditors, the court can order you personally to make a contribution to the company without, financial limit.
This is where you have carried on trading with the intention to defraud creditors, or for another fraudulent purpose. An example would be taking deposits for orders or services that the company could not provide, or giving inaccurate or false information with the intention to deceive. If a liquidator suspects this has occurred he (or she) may apply to court for an order that, any person who was knowingly party to the fraudulent trading, contribute towards the company’s assets. If proved by the Court, then you can be personally liable to make a contribution to the Court, without financial limit. You can also be imprisoned for up to 10 years, or fined, or both.
This is where a breach of your legal duties as a director has taken place. For example, money being improperly withdrawn from a company or misappropriation of company funds for purposes not consistent with the business. On application by the Liquidator, the Court can compel the directors to repay, restore or account for the money or property, or contribute (without financial limit) an amount by way of compensation, as the court directs.
This is where a transaction is entered into which places a creditor, surety or guarantor in a better place than they would otherwise have been, in the event of an insolvent liquidation, than if the transaction had not taken place. Essentially, you cannot make payments, or transfer assets to one creditor in preference to another. For example:-
- Repaying your family or friends before other creditors
- Repaying your director’s loan account before other creditors
- Any actions to avoid liability under a personal guarantee
The Court can set aside such transactions and order you (or indeed the benefactor) to return the asset or repay the funds.
- Transactions at an Under Value
This is where a transaction is entered into which provides for ownership of an asset to be transferred for no consideration (a gift) or less than the market value. The court can set aside the transaction if it decides that is has been made at undervalue. The recipient of the gift, or the new owner can be asked to restore the asset in question to the company.
If you fear you could be liable, it is wise to take advice. Bev Budsworth our MD and Insolvency Practitioner has over 35 years of experience in Insolvency.