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Directors and officers of a company have a positive duty to prevent their company trading or incurring liabilities if it is insolvent.
A company is insolvent if it is unable to pay its liabilities (debts) when they are due.
Before a director or officer allows a company to incur new debt, the director should consider whether there are reasonable grounds to suspect that the company is insolvent or will become insolvent as a result of incurring the debt.
An understanding of the financial position of the company only when a director signs the yearly financial statements is insufficient. Directors and officers of companies need to be constantly aware of a company’s financial position.
There are various penalties and consequences of insolvent trading, including civil penalties, compensation proceedings and criminal charges.
There are various defences available to a director for insolvent trading.
This information is not a substitute for advice concerning your circumstances. Liability limited by a Scheme approved under the Professional Standards Legislation.