There are many aspects to think about as a director in liquidation, and many things you will need to be made aware of too. In this blog, we’re answering the question, what is a director’s conduct report and should I be worried?
What is a director’s conduct report?
A directors’ conduct report is a document that your insolvency practitioner has to file. It contains information regarding your conduct as a director leading up to insolvency and is part of the Companies Act for an insolvent company.
Filing the director’s conduct report is a large part of the insolvency practitioner’s role.
Here are some things that are considered in a directors’ report.
- Company directors’ actions
- Director’s management of finances
- Whether the director has complied with legal obligations
After hearing this, many directors begin to panic and think the worst is about to happen. However, a director’s conduct report doesn’t mean it’s the end of the world. This confidential report is just an essential part of the insolvency process.
The aim of completing the director’s report is to provide an impartial assessment of your conduct as a director. It will take into account your conduct towards creditors and stakeholders. Once completed, the report is sent to the Insolvency Service.
Should I be worried about a directors’ conduct report?
Now, what if you are the director in question for this report? Well, here’s what you need to know.
You’re able to respond
If you find that your director’s conduct report contains information that you believe is untoward, you can respond. This allows you to give your own account of the events and provide justifications as to why you took the actions that you did. It can also be useful to provide evidence that may strengthen your case.
If you find yourself responding, the insolvency practitioner will take what you say into account when finalising the report before it is sent out to the Insolvency Service.
What if the report finds that you’ve done something wrong?
If the report finds that you’ve done something wrong, you could face some serious consequences. For example, you could be disqualified as a director or face a personal liability notice. This notice means that you could be liable for some or all of your company debts.
One thing that the insolvency practitioners will be checking carefully is whether you have any overdrawn director’s loan accounts or if you paid anyone preferentially.
The liquidator will also pay close attention to your bounce-back loan and whether you applied for the correct amount or inflated your turnover. They will want to know how you spent the money from the bounce-back loan, whether it was spent correctly or for personal benefit. This may include paying for a new car or extension, which the loan was not intended for. This is known as bounce-back loan fraud and will not be taken lightly by the Insolvency Service.
The insolvency practitioner will also want to see if you have sold any assets undervalue before liquidating. This will land you in trouble as the company director. If you want to sell assets before the liquidation, you must ensure that you have an independent valuation completed and retain all documentation relating to the sales. If you fail to do this, your actions will be included in the director’s report for the liquidated company.
What to do next
You should seek independent advice if you are concerned about any of these aspects or other serious misconduct. Limited company directors acting fraudulently will be found out and you will face further action, such as director disqualification or fines. Liquidators are duty-bound to complete the report under section 7A of the Company Directors Disqualification Act 1986, so all details will be discovered.
It’s important to remember that not all director’s conduct reports lead to a negative outcome in insolvent liquidation. If it’s found that you’ve acted in good faith, complied with your legal obligations and did everything you could to try and save the company, then you’re unlikely to face any serious consequences.
Pre-pack administration
Companies that are burdened with debt may wish to consider a pre-pack administration. This is when an old company becomes a new company, removing previous debts. There are some criteria and rules that you must meet before you begin this process. For example, you may not be able to use the same or a similar name to the previous company.
In conclusion, a director’s conduct report can be a worrying prospect, but it’s important to remember that it’s just one part of the insolvency process for your business. If you’re the subject of a report, make sure that you respond to the insolvency practitioner appropriately and in a timely manner to avoid causing significant harm to your reputation.
If you’ve become insolvent and you’re struggling to pay your debts on time, get some advice early. The earlier you seek advice, the better the outcome for everybody, including you. Seeking advice early will also look better in your director’s conduct report. We hope that you’ve found this blog useful into director conduct investigations and the reporting service. Contact us today for support.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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