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Licensed Insolvency Practitioners With National Coverage

0800 9700539
07833 240747

Directors Duties in Insolvency and their Implications

picture of bankruptcy petition

Will I Go Bankrupt If I Am A Director Of A Company That Goes Bust?

in Bankruptcy Directors Duties in Insolvency and their Implications Worried Director What Will Happen To Me After Liquidation?

This is often the biggest worry of directors of companies which are in financial trouble.  Generally speaking the whole point of a limited company is that it allows the people running it, i.e directors, to have a LIMITED liability if things go wrong.They are not completely immune, as the Companies Act 1985 and the Insolvency Act 1986 confer certain responsibilties on directors to act reasonably and fairly. So, for instance, if you lie, deceive, and willfully/recklessly pile on debt to a company that subsequently goes into liquidation then you could be held liable personally.  This is know as "lifting the veil of incorporation" What is the process? If the company goes into liquidation or administration then the liquidator, who can be appointed by the court or the company's creditors, has to investigate the actions of the directors.  This is so that creditors can understand why the company failed and if there is any culpability.If there has been bad behaviour, such as fraud, then the court can hold the director/s liable for the company's debts.  This may well result in bankrupcty.  In addition, the directors have to show that they have acted in the best interest of the creditors once the company becomes insolvent.  As such, any actions that may prejudice their position can be reversed.  The two most common such actions arePaying a preferenceA preference is when the director/s pay one creditor over another because they desire them to be better off.  This might be a family member or indeed someone that has a personal guarantee for a loan.​​A transaction at an undervalueA transaction at an undervalue is when assets of the company are moved to another legal entity such as an associated company, or to the directors personally, at a knock down price so depriving the insolvent company of their actual worth.Both of these actions can be reversed up to 2 years after the company entered insolvency. When might a director become bankrupt? Veil of Incorporation If the liquidator takes action by lifting the veil of incorporation due to fraud and negligence as mentioned above and holds the director personally responsible for the debts of the company. Overdrawn Directors Loan Accounts This is a far more common occurence.  In effect, this means that the director/s owe money to the company. They may have borrowed it or they have extracted the money in the form of dividends when there were no distributable reserves (effectively the same thing).This tends to happen when directors want to maintain their incomes despite the company being in difficulty because they believe, rightly or wrongly, that the company will move back into profit.  The problem occurs if the directors owe the company money and it has gone bust!  The liquidators will then pursue the directors for the money as they are a debtor.  This can put severe financial pressure on directors as they may have also lost their ability to earn money from the work they did as the director!  Normally liquidators will try and do a deal with director to repay the debt or they may opt for an Individual Voluntary Arrangement to pay back the debt.  However, if the liquidators believe there maybe assets belonging to the director then they may issue a bankruptcy petition. Personal Guarantees on Loans It is not uncommon for lenders to small businesses to seek the added security of personal guarantees from the company's directors.  If the company goes bust then the lenders will seek recourse from the directors.  This can lead to bankruptcy and the resultant loss of your home and other assets.  As mentioned above the directors may have lost their main way of earning a living from the company anyhow. 

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Will I Go Bankrupt If I Am A Director Of A Company That Goes Bust?

UK SME companies run by women are less likely to go bust than companies run by men.

in Directors Duties in Insolvency and their Implications News

UK SME companies run by women are less likely to go insolvent than companies run by men.KSA Group Limited, insolvency practitioners who run the website www.companyrescue.co.uk has researched the UK SME market of over 4m businesses in an attempt to see if there was a gender bias on the board of companies that become insolvent.The study was designed to investigate if the insolvency rate was higher for male or female-run companies.  In this follow up to its 2018 Study of its kind in the UK, companies were investigated to determine the gender of the board of companies that had either gone into administration or liquidation over the last twelve months, to see if there was any correlation between gender and the general financial health of a business.Key findingsInsolvency rate is 71% higher in male run companies 9 times as many companies are run by men than women There is a small difference in the industry sectors of companies run by men or run by women. Construction businesses more likely to be male run and education business more likely to be run by women.It was found that the insolvency rate of male-dominated businesses was 0.7% and those in female-dominated businesses was 0.41%.  So, the insolvency rate is 71% higher in male-run businesses.What conclusions can we draw from these findings? KSA Group said; “It is apparent that the insolvency rate is higher in male run businesses, but this may be due to a number of factors that have nothing to do with whether men are inherently worse at running businesses than women.  It may well be that the businesses that tend to be more likely to become insolvent due to the nature of the industry or recent economic events are coincidently run by men.” However, he went on to add that "This is now the third study that we have carried out since 2018 and the results are very similar.  In 2018 the types of businesses run by women were different to the ones in 2024. In 2018 property businesses made up a higher proportion of women run businesses that went into insolvency whereas in 2024 it was Retail and Education.  This might suggest that the business sector is not that relevant and so pointing to a higher financial competency, or less risk taking, by women directors. Women in the Insolvency Profession On average, 15% of Licensed Insolvency Practitioners (IPs) are women which does mirror the number of women run businesses.  One outlier firm is ​Alvarez and Marsal Europe LLP with 27% of their IPs being women.  ​See the pie charts below which have categorised businesses into the established Standard Industry Classification. 

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UK SME companies run by women are less likely to go bust than companies run by men.

Business Asset Disposal Relief

in Directors Duties in Insolvency and their Implications Worried Director What Will Happen To Me After Liquidation?

What is Business Asset Disposal Relief​? Business Asset Disposal Relief which allows you to pay less capital gains tax, at 10% on gains of all qualifying assets which are sold. It is applied when you sell your business, and usually in a Members Voluntary Liquidation (MVL).  Capital Gains Tax is the tax on profit when you are selling something which has increased by value.  Am I eligible for the relief? To qualify for Business Asset Disposal Relief , you must meet one or more of the following criteria:You must be disposing all or a part of a business, where you were a sole trader or business partner. Even if you dispose of the assets after, you are still eligible. However, you must own the business for over a year before you sell it and if you are closing the business, the assets must be sold within 3 years. You have at least 5% shares, securities or voting rights within the company being sold. You are also eligible if you have had the chance to buy your shares at least a year before the sale. For this, you must have been an employee of the firm for at least a year, and the company must be one which focuses on trading, instead of those which involve little trading, for example, those who focus purely on investment. You lent an asset to the business and it is being sold. This only applies if your assets were used for a year before the shares were sold, or if you have already sold 5% of your part of the business or shares. You’re selling shares which you got through an Enterprise Management Incentive scheme, after the 5th April 2013.How do I work out the tax I will have to pay?Work out the gains of all the qualifying assets Add all the gains together (deduct any losses) to get the total taxable gain available for Business Asset Disposal Relief Deduct any tax-free allowance You will pay 10% tax on what is left.How do I actually claim for Business Asset Disposal Relief ? To claim for Business Asset Disposal Relief  fill in Section A of the Entrepreneurs’ Relief Help sheet here https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet , or you can do it via your Self-Assessment tax return. During your lifetime you can claim up to £1 million relief, with no limit on how many times you can claim for it.Following the first Labour Budget it has been it has been confirmed that the relief remains but from April 2025 the rate will go up to 18% from the current 10%

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Business Asset Disposal Relief

Company Insolvency in Scotland

in Directors Duties in Insolvency and their Implications Research and Statistics

Is there a genuine company rescue culture in Scotland? There is only one company driving the rescue culture in Scotland, and you have found it!Our firm KSA Group, who run this website, are responsible for a significant proportion of CVA led rescue work in Scotland.If you run an insolvent or struggling Scottish company the chance of rescue is low. Amazingly, less than 1% of insolvent companies are rescued by a company voluntary arrangement or CVA each year!  This is compared to England and Wales, where proportionally, the CVA is used 4 times as often.So always ask your advisors these questions - What about a CVA - would that work? What is the comparison between CVA and liquidation? What is the comparison between CVA and administration?

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Company Insolvency in Scotland
creditor definition in dictionary

Secured And Unsecured Creditors – What Is The Difference?

in Company Liquidation Creditor Actions Directors Duties in Insolvency and their Implications

I am confused about secured and unsecured creditors.  What is the difference? As a director of a company that is doing well and making money you may have no real understanding about the important differences between certain types of creditors.  The only time it really comes up is if you apply for a loan for the business and the lender talks about security and the loan being secured etc. Secured Creditors A secured creditor is a creditor that has security over an asset or assets of the company. So, if the company can't pay then they have the right to the proceeds of the sale or proceeds of the asset.  This is enabled by a legal document called a charge or debenture.  There are two kinds of charge;  A Fixed Charge and a Floating Charge.  The difference is quite hard to explain in a few words so we have a dedicated page on the differences.  Have a read here on fixed and floating charges.  A fixed charge is essentially a charge on a very specific asset whereas a floating charge is across a range of assets or asset that can change.A charge is a bit like a mortgage on your house.  If you fail to keep up your payments then the bank can effectively force the sale of the asset and reimburse themselves.  In a company situation if the secured lender is owed money then they can "force" the company into the hands of administrators who will pay them having sold the assets.  This description is simplistic and is more akin to the old system of receivership but it illustrates the principal. Unsecured Creditors These are essentially creditors that have no security over the assets.  This can be a trade supplier, HMRC, a utility company.  Banks will often lend without security but they will charge a higher rate of interest to offset the risk they can't get their money back.Be aware though that some creditors are called secured as they have a personal guarantee from the director and they may use terminology like "secured against the directors personal assets"  In insolvency law they are not secured and so come after the secured creditors that have a "charge" over the company's assets when money is paid over in the event of a terminal insolvency event like liquidation. What about defacto secured creditors? These are creditors that do not have any security over the company's assets but they have control over the company in that they can shut it down.  An example might be the creditor that runs their proprietory software, or their means of payment (this happens when Amazon have lent the company money to develop their online shop)  such creditors are more properly referred to as "ransom creditors". Ransom creditors are more important if the company is insolvent but could be rescued and so need to continue to trade.  So they need to be kept happy!In a liquidation scenario they would be behind a secured creditor that had a charge over the stock for example.For a more detailed explanation of the priority of creditors in an insolvency situation then please look at our page on creditor priority.  There is even a handy infographic on there too. 

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Secured And Unsecured Creditors – What Is The Difference?
helpful advice for trading whilst insolvent

Trading Whilst Insolvent – Worried Directors Guide

in Directors Duties in Insolvency and their Implications Worried Director What Will Happen To Me After Liquidation?

Trading whilst insolvent is a legal term used to describe a business which continues trading when it cannot pay its debts and its liabilities are greater than its assets.  It can lead to a breach of several provisions of the Insolvency Act 1986 which can result in the directors being held personally liable

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Trading Whilst Insolvent – Worried Directors Guide