Figures released by The Insolvency Service show that in December 2024 there were 1,838 registered company insolvencies in England and Wales.
This is 6% lower than in November and 14% lower than December 2023, but the numbers are still much higher than those seen during the Covid-19 pandemic.
Unsurprisingly retail, hospitality and construction have been the worst hit sectors due to a combination of factors including rising costs, consumer confidence and delays to construction projects.
It is inevitable that some businesses will be adversely impacted by the current sluggish economic conditions and the changes to National Minimum Wage and Employers’ National Insurance which come into effect in April.
Sectors that employ a large number of part-time staff, or staff on relatively low salaries, are likely to be disproportionately impacted.
Given this economic backdrop, it is important directors fully understand their duties and responsibilities, and take steps to ensure they mitigate against risks of personal liability should the company ultimately enter into an insolvency process.
In certain circumstances directors may be held personally liable for a company’s debts or be disqualified from being a director for up to 15 years.
Key steps for directors
Every situation is different, but steps directors should take to mitigate personal liability include:
- Seek professional advice early so there are more options available.
- Document key decisions taken and the reasoning behind and the rationale for the decisions.
- Ensure there is up-to-date and accurate management information to help make informed decisions.
- Prepare forecasts with particular emphasis on short-term cash flow forecasts to identify pinch points and funding gaps, allowing time to seek a funding solution where possible.
- Engage with key stakeholders at an early stage. They could hold the key to a potential solution.
- Hold regular board meetings, involving all directors including any non-executive directors.
- Don’t take dividends or sell/transfer company assets without taking professional advice. Likewise, don’t take customers’ deposits or repay loans, without seeking advice.
- Don’t take further credit or additional debt unless you believe, and can document, there is a reasonable prospect of repayment.
- Review your Directors’ and Officers’ insurance policies.
Directors who take advice early will ensure their company has the best chance of survival.
Even if insolvency cannot be avoided, the process can be planned to ensure the best possible outcome for creditors, and those directors who act responsibly and in the best interests of creditors can minimise their own risks of personal liability.
