As a director you have a fiduciary duty (financial responsibility) to act in the interest of the company and not just your interests. This can become very difficult to balance when things start to go wrong, especially if you have been taking dividends instead of salary or have personal guarantees.
There are also many risk areas to directors that may be relevant if the company subsequently goes into liquidation or some other insolvency process. For example, certain risk areas are:
- Wrongful trading – basically where you should have done something sooner.
- Fraudulent trading – a rare offence, but where directors have intentionally run up debts.
- Undervalue transactions – where assets have been sold too cheaply or given away.
- Preference transactions – where you have chosen to pay off some creditors over others e.g. local suppliers over national suppliers.
- Misfeasance – where you have not complied with your duties as a director for the company as a whole.
It is always sensible to take professional advice on these issues early on. One key piece of advice we give clients is that if you decide to carry on trading take minutes/notes of directors meetings and the reasons why you carried on trading.
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