Claims Against Directors
We protect directors and their families in the wake of business insolvency
Business insolvency can carry long-term consequences for company directors and their loved ones. If you are on the receiving end of a legal claim related to an insolvency situation, it is vital to seek expert advice straightaway to protect you and your loved ones.
If a director is found to have behaved improperly during an insolvency or when insolvency was inevitable, they could be held personally liable for creditors’ losses. Both they and their family members can be drawn into the need to repay those losses, so the consequences can be far-reaching.
At Longmores, our team has years of experience supporting directors and their loved ones who are facing legal claims following an insolvency. We can offer clear, pragmatic advice on your options and robust representation to secure the best possible outcome for your situation.
We know how tough the circumstances around an insolvency can be. Our approach is sensitive and non-judgemental while being keenly focused on the practicalities of the situation and what you need to do to best protect yourself and your loved ones.
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- John Wiblin
- Partner and Head of Dispute Resolution
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Get support with all types of claims against directors
We can help with all types of claims against directors, including:
- Trading whilst insolvent
- Wrongful trading
- Fraudulent trading
- Misfeasance/Breach of Duty
- Transfers at an undervalue
- Preference claims
- Illegal dividends
Access seasoned expertise in defending claims against directors
Our insolvency service is led by Partner Nat Young who is highly experienced in supporting directors and their family members facing insolvency-related claims.
Taking a versatile and pragmatic approach, Nat has an excellent track record of helping clients to sidestep court proceedings and minimise the fallout where a claim cannot be avoided entirely.
Nat works closely with our Legal 500-ranked Company & Commercial team, helping clients with their wider business legal needs, including starting new companies following an insolvency.
Speak to us about defending an insolvency-related claim
To discuss your requirements with our proactive lawyers, please get in touch.
Types of claims against directors with which we can assist
Trading whilst insolvent or wrongful trading
Trading whilst insolvent means that a business is continuing to operate while unable to pay its debts. This can be either before or after formal insolvency proceedings have begun.
Wrongful trading is where a company director allowed their business to continue trading when they knew or should have known there was no realistic prospect of avoiding insolvency. In many cases, this occurs because a director is desperately trying to save the business rather than out of any intention to mislead anyone over the health of the business.
A company director who is found responsible for wrongful trading could be held personally liable for any losses creditors have suffered as a result. They could also face director disqualification, meaning they would be banned from acting as a company director for up to 15 years.
Wrongful trading claims often raise complex questions. Very often, when businesses are trading while insolvent, the directors are trying to save the business from insolvency. In other cases, an earlier insolvency will not have made a difference to the directors. We can support you in making a defence to wrongful trading claims, and if that is not possible, we can negotiate with Insolvency Practitioners and creditors to reduce the amount you are required to repay.
Misfeasance/Breach of Duty
Insolvency Practitioners can also pursue company directors to repay creditors’ losses on the grounds of misfeasance or Breach of Duty. This is where it is believed that a director or directors behaved in a way that breached their duty to their company, at a point the company was either insolvent or bordering on insolvency.
Any actions taken by a director that caused the company to suffer financially could potentially be considered misfeasance. However, it must be shown that the director’s actions were in breach of their duties to the company, and caused creditors loss.
Our team can support you in defending a claim for misfeasance or Breach of Director’s Duty. We can help you avoid the need to repay creditors’ losses or minimise the amount that must be repaid if misfeasance is established.
Transfers at an undervalue
If it is believed that a director has sold or transferred business assets for less than their true value, this can result in serious consequences. An insolvency practitioner will examine any transactions the business has carried out looking for so-called ‘transfers at an undervalue’.
Should such a transfer be identified, then the director could be held liable for the difference between the value the asset was sold or transferred for and its true value. The administrator also has the power to reverse the transaction, returning the asset to the business.
Our experts can advise on transfers at an undervalue, including if such a transfer has been identified or if you are concerned about a particular transfer which you believe may fall under suspicion. In many cases, it is possible to satisfactorily explain why such a transfer was made, but it is essential to have the right supporting evidence to justify the situation.
Preference claims
Preference claims can arise where it is believed that a company has behaved in such a way as to place one or more of its creditors in a better position than others. This usually relates to payments that have been made to creditors e.g. where a director has chosen to pay a particular creditor and not others when there was no business reason to justify this.
Where it is determined by a court that a preference payment has been made, the person who received the payment may be required to repay the amount. Alternatively, a director who was responsible for the payment may be required to make a compensatory payment.
Whether you are a director or the recipient of a payment which might be the subject of a preference claim, we can provide clear advice on your situation and your options.
Illegal dividends
Dividends paid to directors prior to insolvency may be considered illegal or unlawful in a range of circumstances. This includes if the directors failed to ensure the business had sufficient cash reserves to support payment of the dividends, did not properly take into account the business’s current and future liabilities or where the paperwork to declare the dividend is deficient.
In such circumstances, the dividends could be reclassified by HMRC as salary, with significant tax implications. This could be considered a breach of fiduciary duty by the director. It is possible the dividends would need to be repaid.
We can advise on dividends that have been identified as unlawful or where directors are concerned about the lawfulness of dividends. This can help to resolve the situation as quickly as possible while minimising any negative consequences.
Our fees for defending claims against company directors
Sensitivity about cost is understandable when coming out of an insolvency situation and especially when there is the prospect of having to repay funds to the business’s creditors. However, the value of good legal advice cannot be overstated.
Getting the right support at an early stage can significantly reduce the likelihood of having to repay anything or minimise what you do need to repay. Our fees are based on the level of experience we provide and the outcomes we are able to achieve for our clients, so we strongly believe we provide excellent value for our clients.
To find out more about the fees and to request a cost estimate, please get in touch.
Claims against directors FAQs
Can a company director be held personally liable for a business’s debts?
Ordinarily, the director of a limited company cannot be held personally liable for the company’s debts. However, if it is found that they have breached their duty to their company when it was insolvent or bordering on insolvency, then a director could be held personally liable for those losses.
What action can be taken against a director?
If trading while insolvent or misfeasance/breach of duty are established, a director could be held personally liable for any losses to creditors and could face disqualification as a director for up to 15 years. Directors can also be liable for transfers at an undervalue and preference claims.
You can find out more about scenarios where a director may be held personally liable for creditor losses on our page on director disqualification.
Can personal assets of directors be seized to repay creditors’ losses?
Normally, the personal assets of a director of a limited company would be safe. However, if it is found that they have engaged in trading while insolvent or misfeasance, then a director’s personal assets could potentially be seized to repay creditors’ losses.
Further to this, if the director has gifted money or assets extracted from the business to others, such as their spouse, partner or children, or has paid some creditors out of turn, then these sums could also potentially be seized to repay creditors.
Speak to us about defending an insolvency-related claim
To discuss your requirements with our proactive lawyers, please get in touch.
