If you are a director of a limited company facing financial uncertainty there are a number of pitfalls you need to ensure you avoid. Often whilst taking certain actions may seem like the right thing to do it can cause problems both for you and other parties involved.
As a director in this period you are required to act in the best interests of creditors and to ensure that their position is not made worse.
If matters do not improve and the company ends up insolvent then some of the actions which will be investigated are:
- Wrongful trading – has the company continued trading and incurring losses when actually steps should have been taken to deal with the issue earlier. Burying your head in the sand and hoping that matters will improve is often the worst thing you can do.
- Transactions at an undervalue – where an asset is transferred for less than its full market value prior to insolvency this transaction can be overturned and the asset recovered from the third party as well as the directors facing personal liability.
- Preference payments – Whilst it can often seem attractive to settle a few debts prior to insolvency those payments can often be returned and the parties who have received the payment face legal action.
These are just some of the issues that could be investigated once a business becomes insolvent. In short this area can be a minefield for directors and seeking advice can help you navigate this whilst you try to rescue your company.