June 9, 2014

Five tips for directors to avoid corporate insolvency

Directors owe a number of general duties to the company including the duty to promote the success of the company for the benefit of its members. However, these duties need to be carefully balanced with the risk of being tempted to keep running the company through significant financial difficulties which could lead to the director being accused of the offences of wrongful trading and trading while insolvent. These tips are aimed at minimising the risk of a company getting anywhere near corporate insolvency.

1. Review your terms and conditions
It is vital that your terms and conditions are in good order and that each customer has signed them. Both you and the customer should keep a signed copy on file in case any difficulties arise in the future.

Your terms and conditions don’t need to be long, but they do need to be clear and enforceable.

2. Have a business plan
Be clear about objectives and what the company is striving to achieve. This will give the company strategic focus and is a way of measuring performance. If the company isn’t going in the right direction, review the business plan and think about what needs to change.

3. Manage your debts
Slow payers will get a bad credit rating and references so make sure you pay your debts on time. Don’t forget that HM Revenue and Customs are creditors and won’t think twice about enforcing debts owed to them. Generally, honesty is the best policy. If you’re struggling to pay a creditor, tell them. They may be willing to agree instalment or delayed payment terms.

It is also worth investing time in chasing down debts that are owed to you. An effective way to minimise your exposure to bad debt is having a consistent system for credit control and dealing with them quickly before they turn into a much bigger problem.

4. Keep an eye on your credit
Don’t max out your overdraft - try to make sure you have cash in the bank at all times for any unexpected issues or to spend on growing the business when the opportunity arises.

5. Seek legal advice
If your company is struggling to pay its debts as they fall due then it is important to seek professional legal advice as soon as trouble starts.

Don’t delay seeking legal advice if you are owed or owe significant debts. There are a number of offences that if committed in your capacity as a director can also carry personal liability so it is important to know where you stand.

To talk to experienced solicitors who help you minimise corporate insolvency risks, contact our Dispute Resolution team today. Call 0800 923 2076 or email [email protected]

Share on: