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Wrong. There are a number of common scenarios where a director's personal assets may be at risk if a company falls into some sort of formal insolvency procedure. The most common ones are continuing to draw dividends from a company long after its profit reserves are exhausted, or trading on for too long after it's clear that the company has no reasonable prospect of recovery. The most important word in the above paragraph is "may". This is a complex situation and you therefore must speak

Administration

informal arrangements

Remember that formal insolvency processes are complicated, and the explanations below are only the tip of the insolvency iceberg!

An administrator is appointed to a company in order to provide some breathing space from any actions by creditors. The administrator has very wide legal powers during their appointment and the company can continue to trade.

The purpose of an administration is clearly defined in insolvency law and it must achieve one (or more) of the following:-

– the survival of the company as a going concern
– achieving a better result than putting the company into liquidation
– secure a sale of assets for the benefit of the secured or preferential creditors.

For companies in the SME sector the process of administration normally involves three possible scenarios, either:-

A. The assets of the business are sold to an independent third party and an organised wind down of the company’s business takes place;

B. Using strict legal safeguards, the assets of the business are sold back to the existing directors in a new organisation (the process known as a “pre-pack”). The old company collects the sales proceeds and distributes the money to creditors in accordance with their overall legal rights;

C. The company enters into administration, continues to trade, but seeks a “discount” from its outstanding trade creditors and/or time to pay the debt. See ‘Company Voluntary Arrangement‘ page of our website.

To find out more about how we can help please call either Carol, Jackie or Jeanette on 01768 864466.