Directors: Are you aware of your duties in case of liquidation?
Directors have an enhanced duty of care particularly if there is a risk of liquidation. OSK Tax Consultants recommend that you should consider the following:
- The liquidator will report to ODCE on whether the directors acted honestly and responsibly. In a period where a company is not trading well, the directors would be advised to hold and document frequent directors’ meetings to discuss the issues . This will provide evidence of the directors considering such matters as reckless trading or of only taking credit where there is a ‘reasonable prospect’ of repaying it.
- The directors would also be advised to have management accounting up to date; this is to demonstrate that they made decisions based on solid information.
- Directors also need to be informed that the liquidator will undertake an investigation of the last two years’ transactions to ensure that there were no instances of fraudulent preference in the payment of creditors. Such incidences will result in the transaction being reversed and will reflect badly on a director when the liquidator is forming an opinion as to behaving ‘honestly and responsibly’ for their ODCE report.
- A director would be advised to ensure that proper books and records are maintained in the final period of trading; failure to keep proper books can lead to personal liability for all of the debts of the company.
- Having accurate PAYE and VAT returns in the final period of trading is also a key issue that liquidators report on and failures in this area is likely to lead to a restriction and possible prosecution.
Contact OSK Tax Consultants today for advice on all of the above and also advise on all aspects of the liquidation process including before, during and after a liquidation.
Brian Dignam is Partner OSK Audit
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