What are directors' responsibilities during voluntary liquidation?

Voluntary liquidation

Voluntary liquidation can take two forms, Members Voluntary Liquidation or company voluntary liquidation. Briefly these are:-

  • Members Voluntary Liquidation – this is a solvent voluntary liquidation process where a company which wants to go into liquidation and has the ability to pay all its creditors can use the liquidation process to end the company, with the eventual dissolution of the company from the Companies Register.
  • Creditors Voluntary Liquidation – this is a company liquidation where the liquidation of a company and the liquidation process is used because the company or companies in liquidation are insolvent. It is also a final process for the company or companies in liquidation because following the liquidation process the company will be dissolved and taken off the register at Companies House.

Directors’ duties before commencing the voluntary liquidation process

When a company is healthy then most of the duties of the director are to the company itself and the shareholders of that company. Once a company is facing financial problems and possibly company liquidation, the director’s duty is replaced with the duty to act in the interests of the creditors of the company that is to go into liquidation, rather in the interests of the company and shareholders.

At what point the company is likely to go into liquidation is a difficult call. However, this is something a director of a company in financial difficulties that is possibly going to enter a voluntary liquidation process and go into liquidation needs to be very mindful of due to the serious consequences involved.

If a liquidator of a company in company liquidation believes that a director has not acted properly with regard to creditors before the company liquidation process has commenced, that may open up the director not only to possible disqualification as a company director, but potentially personal liability for debts of the company or companies in liquidation, if their conduct falls short of that expected of them. For example, if a director of a company knew or ought to have known that there was no realistic prospect of avoiding the liquidation of a company, they should not incur additional credit from that point. If they do, they may be personally liable to repay to the company any additional credit incurred.

Contact the company liquidation experts today

At Francis Wilks & Jones we act for directors of companies at all stages, including Creditors Voluntary Liquidation, Members Voluntary Liquidation and compulsory liquidation. We advise directors that are concerned about their company’s risk of going into liquidation and what this means for their own personal liability. Contact our expert team today if you have concerns about your responsibility as a company director in voluntary liquidation to discuss further.