Definition
If in the course of the winding up of a company it appears:
- At some time before the commencement of the winding up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation;
- That person was a director of the company at that time
Then the court, on application of the liquidator, may declare that the director make such contribution (if any) to the company's assets as the court thinks proper. Usually this will be calculated based upon the increase in creditor claims between the date trading might reasonably have been expected to stop and the claims upon liquidation.
Defence
The director took every reasonable step with a view to minimising the potential loss to the company's creditors as he ought to have taken.
Practical Points
Directors should consider the following:
- Take professional advice as soon as possible;
- Obtain an up-to-date picture of the company's financial position. This should be updated regularly and should reflect going concern and forced sale position;
- Keep contemporary notes of events and decisions made by the management team. What, why and how?
For further advice and assistance regarding any aspect of the above insolvency procedure, please contact BRI. We will discuss, free of charge, any further implications and alternatives with you. |
