Penalties / Consequences

The evolution of Company Law in the 1990's and beyond has resulted in considerable changes in the whole Insolvency area. Insolvencies have become much more serious environments for company directors. The implications of, and procedures involved in, winding-up a company have become increasingly onerous with the advent of the Company Law Enforcement Act 2001 and the establishment of the Office of the Director of Corporate Enforcement. The duties and responsibilities of directors and the manner in which they conducted the affairs of the insolvent company in the two year period leading to the insolvency come in for increased levels of scrutiny.

The increased burden of responsibility imposed on directors by legislation coupled with the current economic situation result in an environment where companies and their directors must align themselves with a suitably specialist practitioner when faced with a Liquidation situation. Directors of insolvent companies ought to rely on their professional advisors to guide them through the perils of reckless trading, fraudulent preference of creditors, Directors' restriction, Directors' disqualification, personal liabilities for the debts of the company, personal guarantees, employment legislation, breaching of contracts etc.

You should appoint a liquidator if your company is insolvent. There are two definitions of insolvent - one is where the company is unable to pay its debts as they fall due, the second is where the liabilities of the company exceed the company’s assets. If a company is insolvent the directors need to seriously consider their actions. You need to be extremely careful in managing companies which are in financial difficulties. In certain circumstances:

  • Limited liability may be revoked and Company Directors can be held personally liable for the company’s debts.
  • The Director of Corporate Enforcement may disqualify you from acting as a Company Director.
  • The Director of Public Prosecutions may take criminal proceedings against a Company Director.

Due to such very serious consequences, if a Director finds that he/she is unable to pay debts as they fall due he/she should seek advice from a helpful professional, preferably an insolvency specialist, as soon as possible.

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