In relation to wrongful trading, assuming that the necessary limbs of the statute are met (ie, the director at the time knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation or insolvent administration), then there is a defence available to the director if he or she has taken every step to minimise the potential loss to the company’s creditors as he or she ought to have taken. What defences are available to directors and officers in the context of an insolvency or reorganisation? Last, environmental and health and safety legislation may provide for personal liability on directors and officers. A director can also be disqualified in the United Kingdom if he or she has been convicted of (among others) an offence in connection with the promotion, formation, management, liquidation or striking off of a company outside the United Kingdom. The court can also make a compensation order where a director has been disqualified.

They are also liable to disqualification from being a director of any company for up to 15 years under the CDDA. The company’s officers can also be criminally liable under sections 206 to 211 of the Insolvency Act for fraud, misconduct, falsification of the company’s books, material omissions from statements and false representations. misfeasance or breach of any fiduciary or other duty.However, the company’s officers can be held to be personally liable to contribute to the company’s assets for any one of the following reasons: The company’s officers and directors will not generally be personally liable for obligations of their corporations unless they have entered into personal guarantees. Directors’ liability – other sources of liabilityĪpart from failure to file for proceedings, are corporate officers and directors personally liable for their corporation’s obligations? Are they liable for corporate pre-insolvency or pre-reorganisation actions? Can they be subject to sanctions for other reasons? Last, a director could be disqualified under the Company Directors Disqualification Act 1986 (the CDDA). Both a liquidator and an administrator (or an assignee of such) can bring this action. This section goes beyond directors and officers and applies to anyone who has been involved in carrying on the business of the company in a fraudulent manner. Where it appears that any business of the company has been carried on with intent to defraud creditors or for any fraudulent purpose, the court may declare that any persons who were knowingly parties to the carrying on of business in that manner are liable to contribute to the company’s assets. In response to the covid-19 pandemic, temporary measures were introduced to reduce or eliminate the contribution that directors of certain companies must make to a company’s assets if they are found liable for wrongful trading but these expired on 30 June 2021.Ī further consequence of carrying on business when insolvent can be that the court finds a director guilty of fraudulent trading under section 213 of the Insolvency Act. The court may declare that person liable to make such contribution to the company’s assets as the court thinks proper, the amount being compensatory rather than penal. If proceedings are not commenced, what liability can result for directors and officers? What are the consequences for directors and officers if a company carries on business while insolvent?Ī consequence of carrying on business when insolvent can be that the court finds a director guilty of wrongful trading under section 214 of Insolvency Act 1986 (the Insolvency Act) where the other requirements for that offence are met. Directors and officers Directors’ liability – failure to commence proceedings and trading while insolvent

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