Is your business in financial trouble?
Introduction
Running a company today can be volatile and it is likely that a number of companies will run into financial difficulty.
Directors must make an early decision on whether the business should cease to trade. Failure to do so may result in the directors having to contribute personally to the company's losses and be heavily investigated by the Department of Industry (DTI).
Under UK law, if a company is trading insolvent, a director may be liable for wrongful trading. If the director knew or should have known that the company could not avoid becoming insolvent but still continues to trade then he or she must cease to trade immediately and take steps to liquidate the company.
The director of a company which is facing financial difficulty should ensure that there is a reasonable prospect that the company will avoid insolvent liquidation before being party to any decision to trade on.
Deciding whether to continue to trade or not can be a huge problem.
Don't ignore early warning signs
Directors of companies experiencing financial difficulty should never ignore the early warning signs that can threaten a companies survival and should therefore take the following steps:
- Ensure that they meet regularly to discuss current events
- Utilise accurate and up to date accounting information to assess day to day cash-flow
- Keep detailed records of the discussions taking place at meetings
- Ensure that any decision to continue trading is reviewed on a very frequent basis
- Seek expert advice if the viability of the business is in doubt
Directors may escape liability for wrongful trading if they can prove adequate steps were taken to minimise the loss to creditors after it became apparent that the company was insolvent.
If you are involved in a company that may be experiencing problems please do not hesitate to contact us now on 0800 074 6918 or complete the online form.
