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Consequences for a Director of Liquidating a Company

By F A Simms

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If you’re the director of a limited liability company that goes into liquidation, you face little risk – provided that you’ve acted properly and in good time – but there are a number of consequences that you need to be aware of.

 Loss of power but not duties

 When a liquidator is appointed, most of your powers as a director will cease. You will no longer have control of the company or anything it owns, nor will you be entitled to act for or on behalf of the company. However, your duties and responsibilities as a director remain.

 Payment of company debts

 You will not normally be expected to pay the company’s debts unless:

 You have misapplied company funds or the company has traded wrongfully

  • You are a shareholder of the company, in which case you may be asked to pay for any shares not fully paid up
  • You have signed personal guarantees or indemnities to lenders – these may be called in by creditors once they become aware of the liquidation

 Directorship of another company

 During the liquidation you are allowed to act as the director of another company unless you are subject to a disqualification order, have given a disqualification undertaking or are an undischarged bankrupt. A disqualified person needs permission from the court to act as a director or to take part in promoting, forming or managing a company.

 Re-using company names

 As a director of a company that entered Compulsory Liquidation or Creditors’ Voluntary Liquidation, you’ll be banned for five years from involvement with any company or other type of business with the same – or similar name – to the failed company. The only exceptions to this rule are where:

 The business is sold by an Insolvency Practitioner with the legally required notice

  • You obtain the court’s permission to use the name
  • The other company has been using that same name for at least a year

 In addition to the fact that you may be committing a criminal offence, failure to comply with these restrictions may result in you being held personally liable for the debts of the new company. 

Published July 2014