Insolvency is a worst nightmare situation for most companies. This is a financial emergency that needs to be addressed as soon as possible if there is any hope of saving the company. However, when your company is insolvent, it is important that you are minding your p’s and q’s so that you don’t get into deeper water. One thing that all insolvent companies should avoid doing is trading while insolvent. Principle Insolvency is here to talk about some of the consequences of doing so.
Responsibilities of the Director of an Insolvent Company
As the director of an insolvent company, it is your responsibility to make sure your company Is upholding the provisions and obligations of the Companies Act 1993. This lays out the bare minimum that is expected of a director at this trying time. Some of the responsibilities include:
– Making decisions with the best interest of the company in mind.
– Using your power honestly and responsibly.
– Avoiding substantial risk for your company.
– Make sure the company can pay its debts
Reasons to Avoid Trading During Insolvency
Directors should take note of the following risks that come with trading when the company is insolvent:
– Civil Penalties: You could end up being held responsible for trading as an insolvent company. When you trade and your company is in trouble financially, it can give creditors the impression that you’re doing well when you know the opposite is true.
– Criminal Charges: The last thing any director wants is to be held criminally responsible for the continuing to trade when the company is in financial trouble. If you are still trading at this point, you could face prison time.
– Loss of Director Role: You may not want to lose control of the company as the company’s director either. This is another risk that accompanies trading as an insolvent company. It is important that you act in defense of the creditors and avoid defrauding the company. This will help people be more willing to work with you.
How Directors Should Act
Since there are so many personal risks for directors when a company is insolvent, it is important that they are working with an insolvency practitioner to help them take the next steps as a company, carefully. There are several options, but directors may not realize it. When the company can no longer pay debts, trading is reckless and comes with huge consequences. It is vital that directors are honest and acting with integrity.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If you are facing insolvency as a company, it can be beneficial to seek out the help of Principle Insolvency to walk you through the process. We can lay out the steps that you may want to take and let you know what your options are. If you have questions, we can help you navigate them so that you aren’t held personally liable for any missteps taken. Call us today!