With disqualification on the increase what can you do to avoid Director Disqualification

City Law firm Wedlake Bell have released figures this month indicating that the number of director disqualifications are up by 17% on last year. In the year ending 31st March 2010 2,169 directors of insolvent companies faced disqualification proceedings. Directors that have been disqualified have unlimited liability for the losses of any company that they have been involved with.

If you are a director for a company that is struggling financially how can you help minimise the risk of being disqualified?

Firstly ensure you do not end up having an issue with some of the most common causes which when investigating lead to disqualification.

Non-commercial transactions

Particularly in small companies it is easy to fall into the trap of treating company assets as if they were your own. Make sure you keep business and personal items separate.

Poor accounting

Ensure you keep accurate records and complete and up to date accounts.

It is important to get expert advice when the company is struggling to see what options you have.

On the one hand there are Business Rescue options for financially struggling companies. Clearly if you can turn the business around and trade on successfully there is not going to be an investigation by the liquidator and the possibility of disqualification. One of the best of these is Company Voluntary Arrangement or CVA

A CVA is a formal legal agreement with your creditors to make reduced payments on your debts each month in line with what you can afford. At the end of the agreed period (usually 2-5 years) the creditors write off the remaining debt and you can continue trading debt free. The agreement takes the pressure off cashflow enabling the business to continue to trade

On the other had, where the situation does not allow a rescue option then choose a Business Closure option that reduces the risk of disqualification. It is always my advice to directors to deal properly with the closure of a business and not simply close the doors and walk away.

Where closure is unavoidable it is best to start a Creditors Voluntary Liquidation and in this way be in control of the process and the appointment of a liquidator. If you are proactively taking control of a situation of insolvency it is much bigger step for the liquidator to reach a conclusion you were trading while knowingly insolvent and hence consider a case of wrongful trading.

While directors disqualifications are on the increase and the possibility should be taken seriously, it is far from being usual even in a situation of insolvency. Reduce the possibility of being personally affected - act now and get expert advice to help you take some sensible steps to be in control of the situation and potentially rescue your business as well.

Talk to us about Business Rescue and Business Closure options Business Debt Options

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Company Debt Rescue providing straight forward insolvency advice for business owners with business and personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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