Top tips for financiers: directors in a financial crisis
It is not unlawful in itself for a company to trade when insolvent. To avoid personal liability for any increase in deficit, directors should not cause the company to trade on once they know or ought to conclude that it cannot avoid an insolvent liquidation — unless they then take every step with a view to minimising the loss to creditors. Any activity that depletes the assets available for creditors can amount to ‘wrongful trading’ for which the directors could be personally liable.
It is important to note that every step must be taken if the above applies; usually this includes a block on non-essential payments and the incurring of new credit, in favour only of those payments or obligations critical to the company’s current survival plan.
Shadow directors can be made liable for the deficit caused by wrongful trading. The directors must be in the habit of deferring to the shadow director for instruction on what to do. A financier imposing requirements for its own protection, as a condition of continued finance, should have nothing to fear. A written record may help…
Click on the link below to read the rest of the Dentons briefing.
Sign in or Register to continue reading this article
It's quick, easy and free!
It takes just 5 minutes to register. Answer a few simple questions and once completed you’ll have instant access.Register now
Why register to The Lawyer
In-depth, expert analysis into the stories behind the headlines from our leading team of journalists.
Identify the major players and business opportunities within a particular region through our series of free, special reports.
Receive your pick of The Lawyer's daily and weekly email newsletters, tailored by practice area, region and job function.
More relevant to you
To continue providing the best analysis, insight and news across the legal market we are collecting some information about who you are, what you do and where you work to improve The Lawyer and make it more relevant to you.
News from Dentons
News from The Lawyer
Briefings from Dentons
ESMA follow-up papers address aspects of delegated legislation and technical standards to be made under MiFID 2 and MiFIR.
All Canadian businesses that are incorporated must complete an extra-provincial registration if they ‘carry on business’ in a province other than the jurisdiction of incorporation.
Analysis from The Lawyer
Which firms are cutting it in this era of slimline rosters, and who are the GC new brooms making clean sweeps? The Lawyer can reveal all
The continent’s boom in natural resources and renewable energy is sparking an infrastructure drive