Directors find themselves in an awkward position when they realise that the company is insolvent, but they are left nursing the company whilst a liquidation or other insolvency procedure can be put in place.
The directors have an over-riding duty to act in the best interests of the company and its creditors.
The aim of the advice is to ensure that everybody is treated fairly and no creditor or person is put in a better position than another.
Here are a dozen do’s and don’ts for director’s in this situation.
- Do ensure that the company’s assets are secure and insured – you must protect the value of the assets of the company.
- Don’t dispose of assets, move them into other companies, give them to creditors or sell them to customers who may offset the monies due to them.
- Do try to get the company’s book debts in – you will know your customers and the job better that anybody that is appointed.
- Don’t pay monies into an overdrawn bank account – this would be treating the bank preferentially and is not fair on other creditors.
- Do take all credits cards that have been issued to directors and other personnel away from them and ensure that they are no longer used. Continuing to use them would increase the indebtedness to the credit card company.
- Don’t incur any further credit. – This would make the creditors position worse.
- Do put any stock or other goods to the side and refrain from using them, if a creditor claims to have title to them or you believe that the creditor may have a claim over them – it is only fair that they get back their stock if they have title to it. Inform the Insolvency Practitioner or their agent about any claims and let them deal with this.
- Don’t make payments to existing creditors for goods or services already invoiced or supplied, including payments to secured creditors, and any guarantors of company debts. If you can’t pay all the debts, don’t just pay some. It’s unfair to the ones that are not paid.
- Do try to get your paperwork in order. You do not need to get accounts up to date, but at least get a complete list of people you owe money to, a complete list of who owes money to you and details of any assets.
- Don’t make statements to the press or the media. Who wants journalists getting in the way?
- Do put the employees files together, bring any returns up to date and ensure that their details are passed on to an advisor, as this will help your employees make the appropriate claims for redundancy, PILN, holiday pay and arrears of wages, when this is appropriate.
- Don’t order or accept delivery of any goods or services ordered.
The above are for guidance only and this is not an exhaustive list.
The key is to try and keep the financial position of the company (and all those involved) the same and not make it worse.
The period in-between instructing an Insolvency Practitioner and an actual insolvency procedure may seem scary, but as long as common sense prevails, you shouldn’t have too many problems.
You can always ask the Insolvency Practitioner if you are not sure what to do in a situation.
If you have not taken advice yet, please contact a Licensed Insolvency Practitioner. There are many Insolvency advisors that are not qualified, giving advice. You owe it to the company to get the best help for them you can.
Revive Business Recovery Ltd are happy to provide free initial insolvency advice to anybody who needs it, without any obligation. Please call the Licensed Insolvency Practitioner, Claire Foster on 01302 965485 or request a callback using the forms on our website.