When your business is in financial distress, it’s natural to seek solutions that promise a quick and easy way out. However, it’s crucial to be highly cautious of “rescue experts” who suggest schemes that sound too good to be true, such as selling your insolvent company for a nominal fee to walk away from its debts.
Key Takeaways and Warnings:
(1) Directors’ Legal Duties Remain: You cannot simply “abandon” an insolvent company or transfer it to a third party to avoid your responsibilities. As a director, you have ongoing legal duties, primarily to act in the best interests of the company’s creditors once it becomes insolvent or likely to become so.
(2) Risk of Personal Liability and Disqualification: Schemes promoted by unregulated “rescue experts” often bypass proper legal and insolvency processes. Engaging in such practices may lead to severe consequences for you personally, including:
- Personal liabilityfor company debts.– Director disqualificationfor a significant period, preventing you from acting as a director of any company.- Potentially more severe legal repercussions iffraudulent activityis involved.(3) No Clean Break:Directors who engage with such schemes believe they have a clean break, only to face investigations and legal action years later. The company’s debts and the directors’ conduct (duties) do not simply disappear.(4) The Importance of Proper Process:Formal insolvency processes (like administration, CVA, or liquidation) are designed to manage financial distress legally and fairly, protecting the interests of all parties, especially creditors. Attempting to circumvent these processes is risky and can be illegal in some circumstances.(5) Seek Qualified, Regulated Advice:The most crucial advice is toalways consult a licensed and regulated Insolvency Practitioner (IP)when your business faces financial difficulties.-Impartial Advice:IPs are licensed professionals who can provide impartial, legally sound advice on all available options for your business and your duties as a director.- Expertise:They understand the complexities of insolvency law and can guide you through the appropriate procedures, whether that’s rescuing the business or winding it down in an orderly manner.-Protection:Engaging with an IP ensures that you are following legal requirements and helps to mitigate the risks of personal liability and future repercussions.
Summary
If someone offers a solution to your company’s financial problems that seems remarkably simple or promises to make all your liabilities disappear without proper legal process, exercise extreme caution. Your best course of action is always to seek advice from a licensed and regulated insolvency and restructuring professional.