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Operating in a corporate structure often gives Directors a sense of freedom from any personal liability or responsibility for their actions. At its very basic level, Shareholders delegate the day to day management of their Company to its’ Directors. Often Directors and Shareholders are the same people and this causes the common misunderstanding that Directors are not liable for their actions.

Directors often take key decisions by discussing and debating them in a board structure.  Often organisations hold informal meetings which are not documented or recorded.  Rachel Fowler outlines why Directors should record their decisions and retain the information they relied on to reach these conclusions.

Directors have been appointed by the Shareholders and therefore owe a primary duty of care to them.  If there is a threat of insolvency, this duty extends to the creditors of the Company, and Directors are legally bound to take every step to minimise the loss.  If a Company ultimately fails, the actions of Directors will be reviewed and any breaches can lead to Disqualification proceedings and/or personal liability.

Insolvency law and practice is written to encourage a rescue culture, but this personal liability often acts to discourage Directors from developing and implementing turnaround plans.  Our specialist rescue and recovery team can work with Directors to ensure plans are fully documented, reviewed and in line with the rescue culture.

Our team works quickly to identify the pressure points within the business and attempt to mitigate the risk of “knee jerk” reactions.  Often creditors welcome the introduction of specialists to assist Directors and will allow reasonable amounts of time to assess the position. 

A high level business review will quickly identify whether there is a business capable of being saved.  If this is the case and the leadership team are committed to taking on the challenge of a turnaround, then together we can begin the process of getting a business back on its feet. 

The success of a turnaround process is highly dependent on the Directors and often relies on them convincing stakeholders that they can implement sustainable change to make the business work.  The Company may be reacting to circumstances completely outside the control of Directors but their actions will ultimately determine the fate of the business.

As outlined above, the regulatory environment stipulates that Directors must offer a duty of care to all creditors in a rescue environment.  The actions of a Director should not be detrimental to any one creditor from the point that Directors knew, or ought to have known, that the Company was insolvent.  If the latter proves to be the case, a Director could face challenge and criticism, in the form of Disqualification proceedings and/or personal liability.

Some key areas where Directors face challenge are:

• Accepting deposits for products or services which are ultimately not delivered;
• Taking further credit for purchases which are ultimately not paid for;
• Giving preferential treatment to one creditor over another;
• Continuing to take remuneration from the Company over and above a standard salary when the Company is facing financial difficulties;
• Repaying bank facilities which are personally guaranteed.

Notwithstanding the risk associated with rescuing a business in financial distress, a proper and well developed rescue plan can restore a Company to profitability.  It can save jobs and ensure creditors receive an improved return as opposed to shutting the doors.  Our ethos is, if a business is worth saving it should be saved.  We are experienced in working with businesses to ensure Directors are equipped with the tools they need to deliver achievable rescue plans, whilst mitigating the risk of personal liability and challenge.