Table of Contents
In Short
- Directors must avoid wrongful trading, cooperate with liquidators, and prioritise creditors’ interests over personal gain.
- Directors must provide financial records, creditor lists, and asset details to the liquidator.
- Directors face restrictions on re-using the company name and involvement in public companies and risk disqualification for misconduct.
Tips for Businesses
Maintain clear and complete records of the company’s finances and dealings to ensure full compliance during liquidation. Seek legal advice to navigate fiduciary duties and avoid wrongful trading. If in doubt, consult an experienced insolvency lawyer to safeguard your interests and meet all legal obligations.
A company becomes insolvent when it can no longer pay its debts. Company Liquidation is the formal process of closing down an insolvent business and distributing its assets to settle outstanding debts and liabilities. This process ultimately results in the company ceasing operations and being struck off the Companies Register.
Even after insolvency, company directors have several critical legal responsibilities to their creditors and employees. This article explores the importance of fulfilling these responsibilities and avoiding the severe consequences that accompany non-compliance.
Fiduciary Duties
Directors have several essential fiduciary duties during a Company Liquidation.
Directors must carry out their duty not to allow wrongful trading. This means they must not allow the company to continue trading if there is no reasonable prospect of avoiding insolvency or if they continue to enable the company to trade despite being insolvent.
Suppose a director continues to trade while the company is insolvent. In that case, they can be held personally liable, and as a result, they can be ordered to pay compensation personally as they expose creditors to further losses.
Liquidator
The directors must cooperate with the liquidator. They must hand over control of the company to the appointed liquidator and provide them with all books, records, and information relating to the company’s assets, affairs, and transactions.
You should continue to exercise reasonable care and diligence in managing the company’s operations until the liquidator is appointed, as this remains an essential duty.
Finally, directors must avoid conflicts of interest. During the company’s liquidation, they must not put their personal interests before those of its creditors.
If you breach any of these duties, you may be subject to potential personal liability claims or disqualified from future directorships.
Information Provision
During a Company Liquidation, the directors are legally responsible for providing the appointed liquidator with certain key information.
Firstly, directors must hand over all financial accounts, transaction records, receipts, invoices, bank statements, and other bookkeeping documentation related to the company’s dealings. They must also disclose the location of the company’s physical books, records, documents, computer records, and data storage devices.

Understand your role as a director and how to meet your legal obligations. Download our free guide today.
Directors must also disclose full details of all company assets. This includes physical assets such as equipment or property, intangible assets like investments, debts owed to the company, and intellectual property.
Directors must provide the liquidator with a comprehensive list of creditors. This list must include all creditors to whom the company owes money and details of the debts, including amounts, payment dates, and security held.
Examples
Finally, directors will need to present information on company dealings; this may include but is not limited to the following:
- information on recent transactions;
- contracts;
- legal proceedings involving the company; and
- any other relevant business activities that lead up to liquidation.
Any failure to cooperate fully and provide the required information can potentially lead to directors facing criminal liability for offences such as fraudulent trading or property concealment.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Restrictions and Disqualification
There are various restrictions that directors may face during a Company Liquidation.
The first restriction concerns the re-use of the company name. Directors are automatically restricted from replicating the insolvent company’s name for a new business for 5 years after liquidation without court approval.
The second restriction concerns public company involvement. For five years, directors of a liquidated company cannot be directors of any public company or act as insolvency practitioners.
Some acts that can lead to disqualification include:
- misappropriating company assets or records;
- failing to keep proper accounting records;
- continuing to trade when knowingly insolvent;
- using fraudulent business practices; or
- breaching fiduciary duties or statutory requirements.
There are numerous serious consequences of disqualification:
- personal liability for company debts incurred while disqualified;
- criminal offences for acting as a director while disqualified;
- inability to be involved in company management or promotions; and
- potential lack of credibility or reputational damage.
Key Takeaways
Several important legal responsibilities arise during a Company Liquidation. These include fiduciary duties, providing information to the liquidator, and complying with restrictions.
Directors must adhere to their legal responsibilities. There are severe penalties for non-compliance and improper conduct during a Company Liquidation, which can result in directors being held personally liable.
If you need help during a company liquidation, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
When a company is on the brink of insolvency, the directors must shift from prioritising the company’s interests to prioritising the company’s creditors’ interests (known as the ‘creditor duty’).
Directors must preserve the assets of the company during the liquidation or administration process. This involves securing property, stock and machinery, as well as collecting any applicable debts.
We appreciate your feedback – your submission has been successfully received.