If your company is struggling financially, your responsibilities as a director change in important ways. Insolvency law places strict duties on directors and failing to follow them can lead to personal liability, financial penalties, and disqualification.
We covers what insolvency means, how your duties shift, and what steps you must take to stay compliant and protect yourself.
What does “insolvent” mean?
A company is considered insolvent when:
- It cannot pay its debts when they fall due (cash flow insolvency)
- Its liabilities exceed its assets (balance sheet insolvency).
Your duties shift: Creditors come first
Under normal circumstances, directors must act in the best interests of shareholders. However, when a company becomes…