Your Responsibilities As Director

If you are the director of a company facing financial woes, you have certain responsibilities by law. For example, you are obliged to keep control of the company and seek help where required. Ultimately, you must decide whether to end the company or save the company. You are liable for the debts of a company personally if your company continues to trade once insolvent (or once insolvency is clearly unavoidable). This is called wrongful trading.

A director's only defence would be that they took every step possible to minimise the potential loss. The penalty for wrongful trading is for the director to contribute to losses from his/her own pocket plus potential disqualification for up to 15 years! Even worse, if you intentionally defraud creditors by carrying on trading, this is classed as fraudulent trading and carries a potential prison sentence of up to 7 years. So, if a director takes orders knowing they can't be fulfilled, for example, they could be penalised by having to make a contribution from their own pockets (limitless) and compensate creditors accordingly.

Here are some Directors' Do's and Don'ts:

• Don't continue trading once a company is insolvent or unable to avoid insolvency
  
• Don't prioritise creditors and pay one over another or you could land in trouble. Each creditor should be informed and a repayment schedule agreed with each before the possibility of insolvency/liquidation is explored.
  
• Do only get credit for goods you know you can afford to pay for, don't get yourself deeper into debt if you are already facing a financial crisis.
  
• Do pay your taxes and file your returns in good time to meet any deadlines
  
• Do keep adequate accounts and financial records.
  
• Do strive to get market value for any assets you sell off.

Business failure
Business failure: Business failure: Business failure
Business failure: How to reduce business risk
Business failure: Reasons for business failure
Business failure: Rescue company
Business failure: End company
Business failure: What are a directors responsibilities
Business failure: What happens to your employees?

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