When your company is facing insolvency, it isn’t a time to panic. While the situation is extremely stressful, it is important that you don’t act in a rash manner and make mistakes that could have some serious implications. There are several risks both for your business as well as yourself personally when you attempt to trade using an insolvent company. Owners and shareholders should avoid this and ensure that all trades come to a halt. Principle Insolvency is here to talk about some of the consequences of continuing to trade with an insolvent company.
Why Trading Shouldn’t Continue When a Company is Insolvent
There are several reasons why trading should come to a stop once a company is insolvent. We would like to take a closer look at some of the repercussions of continuing to trade with an insolvent company.
– Liability for Civil Penalties: If your company continues to trade even though it is insolvent, you could be held liable for negligent trading. The Companies Office could press charges against you personally. Even if you are doing something as small as ensuring the creditors that you have that your company is fine when you know that it isn’t, you could face penalties.
– Criminal Charges: If there is a serious loss to creditors or the trades are detrimental to the interests of the company, a director could be held criminally liable. It is the responsibility of the director of a company to disclose that the company isn’t able to pay debts to its investors. If this doesn’t happen, there could be criminal charges brought against them by the FMA and/or the Serious Fraud Office. There is a maximum of 7 years imprisonment per charge.
– Loss of Role: When your company is facing insolvency, it is important to play your cards right. You will automatically lose your control of the company, but if you haven’t defrauded the company, you will have a stronger case, and creditors will be more willing to negotiate with you.
Tips for Acting as a Director of an Insolvent Company
If you are the director of a struggling business, it is vital that you seek out the help of a professional to help you make the correct moves. There are options available to you and a company that works with insolvency can help navigate the process. Some of the options that would be available to you would include a hive down action, sale of business, company compromise, or control taken by a voluntary administrator.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If your company is facing insolvency, you can turn to Principle Insolvency to help you navigate your next step. We will make sure you clearly understand all of the options that are available to you. We want to help businesses choose the best move forward during this stressful time. We are here to help when you’re facing financial ruin. Call us today!