What is expected of the Directors in an Insolvent Company liquidation process?

In recent articles we have looked at the difference between a Compulsory Liquidation and a Voluntary Liquidation (usually called a Creditors’ Voluntary Liquidation – CVL) –  and also what the advantages are of a CVL over a Compulsory Liquidation . In this article we look at what directors are required to contribute to the liquidation process.‍

What are Directors required to do in a Liquidation Process?

In a liquidation, a director’s duty is to act in the company’s creditors’ best interests, not that of its shareholders or directors. Trading must stop immediately, and they must assist the chosen liquidator and give them any pertinent information in relation to the Company’s affairs, assist as required in realising the company’s assets, and provide additional assistance and specific knowledge when requested. Specifically:

  1. Duty to Cooperate with the Liquidator. The directors’ responsibility is to provide any information and assistance requested by the liquidator, so they carry out their role. This includes providing access to all the company’s book and records, accounting programmes and data, digital assets and to attend meetings as required.
  2. Duty to Act in the Best Interest of Creditors. This duty is required before and after liquidation and includes not putting one creditor in a better position than another, not to worsen their exposure once the company becomes insolvent and to try to minimise any losses.
  3. Duty to Cease Trading. The directors of a company must stop trading if the company is insolvent and continuing to make losses and incurring additional liabilities. Under the guidance of an Insolvency Practitioner, they might be allowed to complete sales orders, contracts or projects if it does not increase losses further and enhances realisations for the creditors.
  4. Duty to Preserve Assets. The company’s assets must be protected by the directors for the benefit of all creditors once the decision to liquidate has been taken and until the appointment of a liquidator. This includes protecting the company’s tangible assets, such as machinery, property and stock, as well as collecting debts.
  5. Duty to Submit Report. The directors, assisted by the nominated liquidator, must prepare a report and statement of affairs, to be placed before the creditors at a meeting, which sets out the company’s history, trading information and current financial position, as well as detailing any transactions undertaken that were not in the normal course of business in the preceding 12 months. Directors may have to answer direct questions from creditors about matters that are or are not in the report at a physical or virtual creditors meeting.
  6. Duty to Attend Meetings. Directors need to be present at all meetings of creditors and any such other meetings as the liquidator may request. Directors will be required to present information on the company’s affairs and respond to inquiries at these meetings. If the directors do not comply with these requirements, they can be compelled by court order or examined under oath in court.
  7. Duty to Notify Interested Parties. With assistance of the nominated liquidator, the directors will be required to notify shareholders, employees, creditors, and any appropriate regulatory authorities of the company’s insolvency. This will include publishing statutory notices in the London Gazette, consulting with employees and their representatives as appropriate and other stakeholders.

In addition, the liquidator will require directors to complete a questionnaire which will form the basis of information that will need to be provided to the Insolvency Service under the provisions of the Company Director Disqualification Act, 1986. They then undertake further considerations and investigations to help them decide whether the director is fit to continue to be a director or whether a director disqualification investigation is appropriate.‍

The end of the Liquidation Process

After all the assets have been identified, the distribution process begins, and the creditors are paid as far as possible according to the order of priority outlined in this article.

At this stage, the Liquidation is complete and the Company’s name is removed from Companies House Register and formally dissolved.

The prospect of Liquidation can be daunting and very challenging. As ever, the earlier we are contacted, the more we can do to help. So, if your company is experiencing some or all of these warning signs, get in touch:

If you are concerned about the financial position of your company and are facing insolvency, please contact us or contact one of our offices:

Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley:

Our Insolvency Practitioners will take you through your options step by step and will advise you of the best one to take under the prevailing circumstances.