A director recently engaged PBC to assist them defend a substantial monetary claim being made by the liquidator of her company.  That director is (not uncommonly) asking why is this happening and can the liquidator do this and what has she supposedly done wrong?  The fundamental basis of the claim surrounds a breach of director duties when a company becomes or is likely to become insolvent.

The Government recently launched the Corporate Civil Enforcement Reforms Consultation, which is aimed at enforcement against directors who breach their statutory duties.  The consultation is to consider reforms on both the Company Directors’ Disqualification Act and how to place more of a burden upon a culpable director where civil restoration proceedings are concerned.

For over two decades, Gary Pettit of PBC has questioned why the UK does not require first-time directors to obtain some basic knowledge on the governance of a company. As Gary has often said,

“To drive a car, you need to pass a test.  To be a qualified Insolvency Practitioner, you have to pass various examinations.  But, to be a director and potentially put thousands of pounds of other peoples’ money at stake, anyone can pay a nominal sum and incorporate a company and trade oblivious of demands imposed by statute.”

As part of their response to the consultation, The Association of Business Recovery Professionals (who are the trade body for insolvency professionals) included a need for first time directors to be provided with access to basic training.  This would be focussed on principal statutory duties and the core basics of accounting functions. 

At PBC we welcome this as many directors fall foul of their duties innocently and without proper understanding.  This can cause those directors avoidable (and stressful) issues following an insolvency event.  It goes without saying, but a common occurrence of breaching director duties will be when the company is experiencing financial difficulties.   Panic may set in or even a self-preservation mode starts to prevail over all other issues.  This is where taking early advice can help a director avoid stepping on those “Mines” and not become the next director fighting off accusations of breaching their duties.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.