Circumstances that lead to Claims

Whether it is a claim by disgruntled shareholders or co-directors, one commenced by the Secretary of State seeking a director disqualification order or you are being pursued by a Liquidator or an Administrator, many claims against Directors have common themes running through them.

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Set out below are some of the most common, all of which we can provide specialist advice on:

Payment or transfer of assets of company Read more

Where a company enters into formal Insolvency proceedings – for example Liquidation or Administration – any company payments or company assets transferred pre-insolvency may be recovered through what is called an Antecedent Transaction claim. In these circumstances a Liquidator or Administrator can unpick company transactions for a period of up to 2 years prior to the date of insolvency. If they find any wrongdoing, this can lead to a personal claim against a director ( whether s/he recevied the company payments/assets or not ). For more information relating to these types of claims, please visit our Claims against Directors by Liquidators or Administrators page.

Overdrawn Director’s Loan account Read more

It is quite common for any benefits provided to Directors by the company, or any drawings by Directors, to be classified as loans to Directors (“Directors Loans”). Such transactions or payments may be later claimed from Directors personally as a debt due to the Company, or by an appointed Liquidator or Administrator.

There are also tax consequences of Director’s Loans, which are subject to tax if not repaid by the year-end. HRMC has taken recent steps to increase its enforcement measures against Directors who have received Directors Loans.

Where a company enters into formal Insolvency proceedings – for example Liquidation or Administration – such debts can be recovered as a commercial debt or, where unpaid for some time, an Antecedent Transaction. Please see our page on Claims against Directors by Liquidators or Administrators for further information. Our Director Disqualification page also refers to the potential non-financial consequences of drawing such monies without repayment to the company.

Payment of specific creditors Read more

Where creditors are deliberately selected for payment or non-payment, Directors in either scenario may be in breach of their fiduciary duties to the company, especially where the company is making losses or is insolvent.

Where a company is facing Insolvency and only certain creditors are repaid, then such repayments may be recovered from either the receiving party or directly from the Director by a subsequently appointed Liquidator or Administrator as an Antecedent Transaction. Additionally, such events may lead to the issue of a Director Disqualification claim against Directors and this is extremely common where the Directors have caused the company to trade to the detriment of HMRC.

Failure to keep accounting records Read more

It is a statutory obligation of companies to annually file a Financial Statement, providing details of assets and liabilities (balance sheet) and income and expenditure (profit and loss account). Accordingly, to adequately prepare such a statement (which must show and explains the company’s transactions and disclose the company’s financial position) accounting records are required to be maintained by the Companies Act 2006.

A failure to comply with these obligations can result in officers of the company (both company secretary and Directors) being subject to criminal proceedings and, on conviction, a fine or imprisonment up to two years. We refer to our booklet titled Directors duties and responsibilities – What Constitutes Misconduct Part 4 which addresses the requirements of all Directors to ensure the company complies with its statutory obligations to file returns and maintain, deliver and preserve accounting records. This sets out the key issues when considering potential claims arising from any such failure to keep or secure accounting records.

Where a company enters into formal Insolvency proceedings – for example Liquidation or Administration – the failure to keep such records or file such accounts can lead to Director Disqualification proceedings being commenced against the Directors. This can extend to a failure by Directors to preserve the accounting record or a failure to deliver them up – for example abandoning such records can constitute a finding of unfitness (and thus disqualification) against a Director.

New company start-ups following insolvency Read more

It is often the case that when a company faces insolvency this provides an opportunity for business owner/managers to start trading the same business but through a new company (i.e. one without the problems currently existing in the old company).

This is perfectly acceptable under the laws of England and Wales subject to certain restrictions on the use of the old company’s name (or a name which may suggest an association with the old company) which is governed by the insolvency legislation. Failure to adhere to these can lead to personal claims against those individuals who were Directors of the old company and are also Directors / involved in the management of the new company. Our booklet on Re-use of a company's name is a handy guide as how to best avoid the pitfalls associated with this area and how best to react if you are in default.

In addition, where the old company has entered into any formal Insolvency proceedings, then up to two years after insolvency director disqualification proceedings may be brought by the Secretary of State. If you are subsequently disqualified as a director (and your new company may have been trading for some time by then) then you may require leave to continue acting as a director of that company – please visit our Director Disqualification page for more information.

 

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