Exactly what happens to the director of a company in liquidation will depend on their unique situation, how they conducted themselves, what method of liquidation was undertaken, how promptly they acted, and whether they ever signed some form of personal guarantee. .
Possible outcomes for a director of a company in liquidation include:
Loss of Power
Regardless of the circumstances surrounding your liquidation, the most obvious thing that happens to the director of a company in liquidation is that your time as company director will be brought to a premature end, if only temporarily. The director is summarily stripped of their position once an insolvency practitioner is appointed.
While the insolvency practitioner will, in essence, be acting as the company director for a period, they will still require the assistance and cooperation of the former director. This will be to gather any and all information, data, accounts etc.
As director of the business in liquidation, the buck stops with you. Therefore, it is standard practice for an insolvency practitioner to investigate the conduct, actions, and behaviour of all directors, in the period prior to liquidation.
The investigation will be centred on seeking evidence that you, as director, did not place your own interests ahead of those of the company and its creditors. Punishments for this can include:
- Disqualification as director of any company for up to 15 years
- Wrongful trading charges
- Fraudulent trading charges
- Jail time
If you have signed any form of personal guarantees, are seen to be guilty of misfeasance or wrongful/fraudulent trading, or it is stated in a shareholder agreement, it may be possible for the assets of the director to be used to pay back any debt or as collateral.
The way the structure of business is set out is to provide as much protection as possible for company directors. This is done to ensure that a failed business does not necessarily lead to the personal lives and personal finances of all involved in the operation being ruined.
Additionally, when the company liquidator takes over the business, should he discover money owed by a director, for example through overdrawn director’s loan accounts, this should be classified as a business asset and therefore must be called in.