Directors’ Duties When a Company Becomes Insolvent

Directors’ Duties When a Company Becomes Insolvent

When a company can’t pay its bills or has more debts than assets, it is legally considered insolvent.
For directors, this is a critical moment. Your responsibilities change immediately and how you act can affect both the company and your personal position.

At Company Debt Experts, we support directors through every stage of financial difficulty. This guide explains your duties in simple terms and helps you understand what actions you must and must not take.

What Is Company Insolvency?

A company is insolvent when:

• It cannot pay bills when they are due, or

• Its debts are greater than the value of its assets

When either happens, directors must shift their focus from shareholders to protecting creditors.

Your Legal Duties as a Director of an Insolvent Company

Once a company becomes insolvent, directors have clear legal responsibilities. Following these rules can help prevent further losses and reduce the risk of personal liability.

1. Protect Company Assets

You must safeguard company property, money and any valuable items.
Nothing should be sold, transferred, or used in a way that harms creditors.

2. Treat All Creditors Fairly

Directors cannot choose to pay one creditor over another.
Everyone must be treated equally, whether they are suppliers, HMRC, lenders, or contractors.

3. Avoid Making the Insolvency Worse

Directors must not:

• Take on new debts the company cannot repay

• Continue trading with no realistic chance of recovery

• Sell assets below their true value

Your key duty is to minimise losses for creditors.

4. Speak to an Insolvency Professional Early

Getting expert advice early can protect you and your business.
Company Debt Experts help directors understand their options and avoid costly mistakes.

Can Directors Be Personally Liable for Company Debts?

Most directors are not personally responsible for company debts.
However, if the company is mismanaged during insolvency, personal liability can arise.

Situations that may lead to this include:

• Wrongful trading – continuing to trade when insolvency is unavoidable

• Fraudulent trading – knowingly misleading creditors

• Misfeasance – misusing company money or assets

• Compensation orders – where a court requires the director to repay losses

These risks make it essential to act responsibly and seek advice early.

If You’re Unsure, Get Professional Help

Directors often face difficult decisions during insolvency. If you are uncertain about what to do:

👉 Company Debt Experts can guide you through the process
👉 We help you understand your duties, avoid personal risk, and find the best path forward for your company

Speaking to experts early can make a significant difference.

📞 Speak to us today: 020 4165 2000
📱 Text “HELP” to: 07435 688 934