Insolvency advice for directors and creditors

Take advice before you decide which creditors to pay or whether to continue trading. Hold regular board meetings, minute the decisions and the reasons for them, and keep cash-flow forecasts up to date. Do not repay loans from directors or connected people ahead of other creditors, and do not sell assets for less than their value. Once there is no reasonable prospect of avoiding insolvent liquidation or administration, directors should take every step to minimise the potential loss to creditors, and a licensed insolvency practitioner should be consulted.

Wrongful trading is where a director of a company that goes into insolvent liquidation or administration knew, or ought to have concluded, at some earlier point that there was no reasonable prospect of avoiding that outcome, and did not then take every step to minimise the potential loss to creditors. The court can order the director to contribute to the company's assets. It judges the director against a reasonably diligent person with the knowledge, skill and experience expected of someone in that role, and the director's own if greater, so a written record of the advice taken and the decisions made is important.

Usually not, because a limited company is responsible for its own debts. The main exceptions are debts you have personally guaranteed, and claims brought by a liquidator or administrator, for example for wrongful trading, for misfeasance, or to repay money you received ahead of other creditors. A director whose conduct makes them unfit to be concerned in the management of a company can also be disqualified for up to 15 years. We look at your own exposure and what can be done to reduce it.

A statutory demand is a formal written demand for payment of a debt. If a company does not pay a debt of more than £750 within three weeks of the demand being served, the creditor can petition the court to wind the company up. For an individual, the debt must be at least £5,000 before a bankruptcy petition can be presented. An individual can apply to the court to set the demand aside, for example where the debt is disputed on substantial grounds, usually within 18 days. A company cannot challenge the demand itself, but it can apply to the court to stop a winding-up petition.

Submit a claim, called a proof of debt, to the administrator or liquidator, and check whether you have rights that improve your position. If your terms include a valid retention of title clause, you may be able to recover goods you supplied that have not been paid for and can still be identified. Check whether anyone personally guaranteed the debt and whether you have credit insurance. In a liquidation, unsecured creditors are paid after the costs of the liquidation, preferential creditors such as employees owed wages, and lenders holding security, so they may receive only part of what they are owed.

Depending on the company's position, a company voluntary arrangement allows it to agree a repayment plan with its creditors while it continues to trade; administration protects the company from creditor action while an administrator tries to rescue the business or achieve a better result for creditors; a moratorium gives the company a period of protection from creditors while the directors pursue a rescue; and a restructuring plan can bind creditors to a compromise approved by the court. Each depends on the business being viable and having funding, so they are worth considering before creditors begin enforcement action.