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What are my duties as a director if my company becomes insolvent?

Published 09/08/2011

Toby McMurray, partner and head of insolvency at Tughans Solicitors
Toby McMurray, partner and head of insolvency at Tughans Solicitors

Question : I am a director of a company that is in financial difficulty. Are my duties any different now that I am aware that my company may be insolvent?

Answer: Toby McMurray, partner and head of insolvency at Tughans Solicitors, Belfast, says:

All directors owe 'fiduciary duties' to the company (its shareholders) that they are a director of.

These duties are fairly well codified in the Companies Act 2006 and include a duty to act in accordance with the company's constitution, a duty to act in good faith and promote the success of the company and a duty to avoid conflicts of interest.

However, as and when a director of a company becomes aware or even when he ought to have become aware that the company is insolvent, the onus of a directors' duties change considerably.

The shift in onus is from the company, as outlined earlier, to that of the company's creditors.

Upon insolvency a director must primarily be concerned with ensuring that the company's creditors are put in no worse a position.

In essence a director must ensure that the company's asset and liability position does not worsen in the period between when the director becomes aware that the company is insolvent and it entering an insolvency process.

There are serious sanctions that can be imposed on directors who breach these rules.

These can vary from being disqualified as a director to imprisonment.

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