Timely Warning to Directors

There has perhaps never been a tougher time to be a company director in the South West.

The Department for Constitutional Affairs has announced that 10% more companies were wound up in the first quarter of this year compared to the same period in 2004. Personal bankruptcy also increased in the same period by a massive 47%.

Chris Lingard, partner at the business solicitors Follett Stock, explained that the rise in personal bankruptcy is probably because of the newer more relaxed insolvency regime introduced last year that sees automatic discharges after 1 year as the norm. He thinks that the rise in company insolvency is potentially more worrying however.

“We are certainly experiencing a significant rise in insolvency related instructions. At the same time the Dispute Resolution team is busier than ever before. Historically these two factors have indicated a hardening in the market as economically things get tougher”.

At the same time the era of the “phoenix company” is coming to an end. In the past directors of failed companies merely set up a new company the next day with a similar name, leaving the creditors high and dry. Now a person using the name of a liquidated company can be liable personally for the debts of the second company and risk being prosecuted in court.

Liquidators also have stronger powers than ever to pursue directors personally for debts run up by the company before it is wound up. The Department of Trade is also showing itself to be very ready to pursue directors disqualification orders which can lead to imprisonment if ignored.

Chris Lingard says:-

“It is imperative that the directors of a company experiencing cash flow problems take early advice from the right people. Often measures can be put in place to ensure not only that the company survives but also that the directors do not put their personal assets on the line. I heard recently of one director who was given completely wrong advice from the legal advice line of a well known employers’ organisation. He was told to take the company’s client list home and start trading the next day on his own account. That advice was about as wrong as it gets”.

Chris Lingard is a Solicitor Advocate (Higher Courts – Civil). He can be contacted at chris.lingard@follettstock.co.uk.