Directors’ duties in financial difficulty

Recognise the position and record decisions

Review short-term cash requirements alongside assets, contingent liabilities and debts falling due. A profitable set of historic accounts does not establish that today’s bills can be paid. Keep records of assumptions, forecasts, advice and the reasons for significant decisions.

The duty to consider creditors is an aspect of the duty owed to the company. Its trigger and weight depend on the circumstances; a mere risk of future insolvency is not the same as inevitable insolvent liquidation. The Supreme Court’s Sequana decision is an important starting point for the legal analysis.

Protect the company’s position

Review new commitments, asset sales, payments to connected people and transactions benefiting a personally guaranteed creditor. A transaction can be examined later for its commercial purpose, consideration, timing and effect. Documented advice supports a decision; it does not remove the director’s responsibility to exercise judgment.

• Preserve accounting records, bank records and business correspondence.
• Keep company assets separate from personal property.
• Avoid unsupported transfers or selective repayments that prejudice creditors.

After an office holder is appointed

Control of the business depends on the procedure. Directors must provide requested information, explain transactions and cooperate with the office holder. Appointment does not erase personal guarantees or automatically establish misconduct. Recovery claims, disqualification and criminal matters have different tests and processes.

The position in Northern Ireland

Companies Act duties operate alongside the Insolvency (Northern Ireland) Order 1989 and local rules. References in England and Wales guidance to sections, forms or courts are not substitutes for the corresponding Northern Ireland provisions. The Department for the Economy provides local director-disqualification and insolvency guidance.