When an insolvent limited company enters liquidation, one of the liquidator’s key duties is to investigate the causes of its financial decline. This includes looking into the conduct of directors during the time leading up to insolvency.
Their findings are incorporated into a director’s report, with a recommendation regarding any further action that may be needed. The report is then sent to the Insolvency Service, who acts for the Secretary of State, for further scrutiny on whether civil or criminal wrongdoing has taken place. If criminal activity is suspected, the case may be passed to the police.
Director conduct is a major issue in the liquidation of a company. Under the Companies Act, 2006, directors take on a range of responsibilities and are obliged to fulfil certain duties, one of which is being fully aware of their company’s financial status at all times.
This helps to protect their creditors from suffering financial losses, and allows the company to act quickly at the decline stage to avoid full insolvency. If a director is found to have acted wrongfully or unlawfully, or their conduct is in any way to blame for the company’s demise, the director’s report will provide detailed information.
