The current lockdown will not end until at least 2nd December 2020 which may cause significant financial problems for some companies, in some cases leading to insolvency.
Directors of companies in financial distress may incur personal liability for the debts of their company. Here are some tips and practical steps that Directors can take to ensure they fulfill their duties as directors of their company and protect themselves against potential personal liability:
1. Hold frequent board meetings in order to assess the financial position of the company and ensure that accurate minutes of those meetings are held.
2. Ensure that accurate and up to date company financial records are maintained.
3. Ensure that the company’s financial position and future cash flows are continually monitored and in particular consider all ways to reduce expenditure.
4. Make sure that the company does not pay some creditors in preference to others. Once the company has become insolvent, directors have a duty to act in the best interests of all the creditors of their company.
5. Ensure that you have terms of business and that those terms apply to all contracts your company has with its customers.
6. Be diligent in issuing invoices and collecting your debts. If any of your customers are themselves having financial problems, attempt to agree repayment plans and confirm any agreements reached in writing.
7. Check the small print of all agreements you have with the company’s bank and/or other funders. Additionally, check what security those funders have over the company’s assets and which assets are subject to that security.
8. If, as a director, you have given personal guarantees to either the company’s bank or other funders, check the extent of your liability and ensure that you maintain a constant dialogue with the bank or other lender if financial covenants may be broken which could lead to a demand for payment under the personal guarantee.
If your company faces insolvency and you would like to discuss this further, please email me: Rob.Moore@tayoremmet.co.uk