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Any director who knows that the company is insolvent and makes the decision to continue to trade, and in doing so increases the debts of the company can be made liable for the company debts. [2] In the UK, directors are exposed in respect of transaction at an undervalue, preferences, and extortionate credit transactions if the transaction ...
Directors of the company are prohibited from acting in their capacity as directors for the duration of the administration, while administrators are personally liable for any debts incurred by the company in the course of the administration. [4]
Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance. Directors' duties are analogous to duties owed by trustees to beneficiaries, and by agents to principals.
For example, the directors of small companies (who are frequently also shareholders) are often required to give personal guarantees of the company's debts to those lending to the company. [5] They will then be liable for those debts that the company cannot pay, although the other shareholders will not be so liable. This is known as co-signing.
Corporations exist in part to shield the personal assets of shareholders from personal liability for the debts or actions of a corporation. Unlike a general partnership or sole proprietorship in which the owner could be held responsible for all the debts of the company, a corporation traditionally limited the personal liability of the shareholders.
It also means that the directors need to be extremely careful when considering whether to continue to trade, or not. Any director who knows that the company is insolvent and makes the decision to continue to trade, and in doing so increases the debts of the company can be made liable for the company debts. [3]
There are two court procedures: first, a procedure for a company that is not yet insolvent, known as a protective composition, and second, a formal bankruptcy that is split into a rescue process (similar to protective composition) or liquidation. [35] Directors of a company can be held personally liable for its debts. [36] [37]
The extent of the director’s responsibility for the company entering into any transaction liable to be set aside under Part XVI of the Insolvency Act 1986 (provisions against debt avoidance). The extent of the director’s responsibility for any failure by the company to comply with any of the following provisions of the Companies Act 1985 ...