Rewriting the Rule Book on Insolvency Directors See Short Cuts Blocked



Big business is often about survival.


Working hard to create visibility, maintain credibility and foster profitability isn’t always easy, and sometimes, it’s all about weathering the storm and digging in your heels.


Survival shouldn’t be about escaping responsibilities though, and a recent ruling by a judge is looking to stop company directors looking for an easy way out.


Up until recently, company directors have been able to effectively sidestep existing debts by filing for insolvency, but now, any duties that are owed by a director will live on beyond the collapse of a company.


This effectively means that directors won’t be able to buy up assets ‘on the cheap’ and start again where they left off.


This isn’t an advisory either, it is a ruling from the High Court that directors of insolvent companies should no longer be allowed to purchase assets of the failed business at reduced rates.

It all stems from a landmark case where the director of an insolvent company ‘unfairly’ purchased a house from a less than professional insolvency practitioner, just 18 months after his company went into liquidation.


A judge ruled that the director must’ve known that the sale was completed at a much-undervalued price, and that it was of no benefit to any of the creditors from the insolvency.


This was the first case to consider what directors’ duties survive the insolvency of a company and will come as good news to any parties who are left out of pocket when a company goes into administration.


The judge ruled that ‘the duties owed by a director to the company and its creditors survive the company’s entry into administration and voluntary liquidation’.


What this means is that directors can’t find an easy way out of debts and settlements by placing their company into administration or liquidation, only to re-establish themselves through the repurchase of the assets via ‘sideways looking’ insolvency practitioners.


Cleaning things up, a little.


Survival is important, but it must be done in the right way.


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