When a company is dissolved, it means that it has been formally closed down and removed from the Companies House register. Once dissolved, the company ceases to exist as a legal entity and can no longer trade, employ staff, or enter into contracts or agreements. This can occur for various reasons; company directors can request that their company be dissolved, it might occur at the conclusion of an insolvency process, or be ordered if the company is struck off – for example, for not filing required documents.
Naturally, if your company is facing closure, this can be an extremely difficult experience and raise a lot of questions about what will happen to directors. However, there are often ways to prevent a company from being closed down against your wishes, especially if you act quickly. For example, if you are facing pressure from creditors, there may be legal mechanisms you can use to get more time to pay. Provided you manage this process effectively, you might be able to rescue your business.
In these cases, it’s important to speak to an expert for advice. The team at Company Insolvency Advice has significant experience in advising company directors on business rescue solutions. The sooner you call us, the more options will be open to you, and the more control you will have over what happens to your company.
If you have chosen to dissolve a solvent company or want to know more about what to expect as the director of a dissolved company, we can help. In particular, you might still have questions about what will happen to you as a director. Here, the experts at Company Insolvency Advice break down what directors’ responsibilities entail during the dissolution process, explain what happens afterwards, and highlight the opportunities for redundancy pay that many directors miss.
What are directors’ duties during the dissolution process?
Once a company is dissolved, it can’t trade, sell assets, or enter into any kind of transaction. Directors lose their authority to act on behalf of the company, but they might still have certain responsibilities. Being a company director during the dissolution process means you may be responsible for settling any debts, distributing assets, and completing all necessary paperwork prior to the dissolution. However, if your company goes into liquidation, these responsibilities may go to a liquidator.
Creditors may apply to the court for the company to be restored to the register for the purpose of recovering debts. If this occurs, directors may find themselves involved in settling those debts. They may also be required to deal with any unresolved tax liabilities or issues with HM Revenue and Customs following the dissolution.
In terms of responsibilities, directors are not usually personally liable for the debts of a limited company unless they have signed personal guarantees. This also means that the dissolution will not affect your personal credit rating. However, as well as personal guarantees, you may also be liable or have your credit rating affected if you have been found guilty of wrongful or fraudulent trading.
In these cases, directors of dissolved companies may face further consequences. While directors are not liable for debts, dissolution does not necessarily protect against personal liability. This means authorities may still pursue legal action against the former directors personally and, in serious cases, directors may be disqualified from serving in this capacity in the future. While this is rare, it has a significant impact on the decisions directors can make moving forward, so it is important to discuss how this works.
When can a directors’ disqualification occur?
In some cases, the Insolvency Service can decide to disqualify company directors from serving in a similar capacity. Directors who have acted improperly may be disqualified from acting as directors for other companies for a period ranging from two to 15 years, so this can be a very serious penalty.
This can happen for a number of reasons that are usually referred to under the banner term of ‘unfit conduct’. Actions that might be considered unfit conduct include:
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- Fraudulent trading: Engaging in deceptive or fraudulent practices.
- Misappropriation of company assets: Wrongful use or taking of company assets for personal gain.
- Breaking UK company law: This includes failure to file annual accounts, confirmation statements, or pay taxes on time.
- Failure to pay debts: If a director continues to trade and accrue debt when they should have reasonably known the company was insolvent, they may be liable for wrongful trading.
- Breach of fiduciary duty: Not acting in the best interests of the company, its shareholders, or creditors.
- Misuse of the Bounce Back Loan scheme.
These are not the only examples. If your company is liquidated, the appointed liquidator will examine the conduct of directors and if they find actions that they believe represent unfit conduct, they can report this to the Insolvency Service. However, under the law, anyone who is concerned about your business’ conduct can make a report.
However, this list should illustrate that in most cases, directors will not need to worry about disqualification. This option is only considered in very rare cases, where directors have made serious mistakes or engaged in criminal activities.
What can directors of dissolved companies do afterwards?
While there may be serious emotional consequences following the closure of a company, a director who is not subject to disqualification has relative freedom to pursue other opportunities and make a fresh start.
For example, directors are generally free to start a new company unless they are disqualified or are under some form of contractual restriction. They may be restricted from using the same or a similar company name for a certain period, but in some cases, this will not apply and a director can start a new company with the same name immediately upon the dissolution of their former company.
Depending on the circumstances in which your business closed, you might also qualify for company directors’ redundancy pay. Many directors are unaware that they can claim redundancy pay, but you may be eligible in some cases, depending on your role in the company and the overall structure of the business.
Speak to the experts at Company Insolvency Advice today for advice on your obligations and to learn whether you are eligible for redundancy pay. Or, if you are facing the dissolution of your company and you need to know how to respond, we can help by discussing the company rescue strategies available to you.
To get started, call our team on 0800 999 0666 or use our online enquiry form to arrange a call back at your convenience.
