Director of a business in financial difficulty?
With the recession predicted to be the longest since records began, we have some do's and don'ts for directors of a business in financial difficulty.
In a recent article, we discussed an important court decision on the duties of directors towards creditors. In this follow-up article, we discuss what steps directors should and should not take when their business encounters financial difficulty.
The Government’s company and individual insolvency statistics for October 2022 - reveal that the number of corporate insolvencies for the month was 1,948, an increase of 15.7% on the September 2022 total of 1,684, and 38.2% higher than October 2021’s total of 1,410. To compound matters, the Bank of England has warned that the UK could be set for its longest recession since records began.
It is inevitable that increasing numbers of companies will face financial distress. Such situations are invariably stressful and can lead to directors making decisions which may make matters worse both for the company and themselves personally, even if the effects are not immediately apparent.
Below is a list of the most important ‘Dos’ and ‘Don’ts’:
- Be mindful at all times of your legal duties as a director.
- Hold regular board meetings, recording the reasoning behind crucial decisions.
- Regularly review the company’s financial position and plan accordingly.
- Maintain accurate books and records.
- Communicate with stakeholders.
- Seek professional advice from accountants, solicitors, and other professional advisers at an early stage.
- Incur further liabilities needlessly.
- Permit transactions which are of little or no benefit to the company or its creditors.
- Ignore pressure from unpaid creditors.
- Delay in raising matters of concern with fellow board members.
- Resign without good reason for doing so.
- Do nothing!