Directors Obligations When Corporate Insolvency Is Declared

Understand your role in the corporate insolvency process if you are a director of the firm.

While most people experience only a job loss when they are an employee of a firm that declares corporate insolvency, there is much more at stake for the directors of the company. These are the people who have a stake in the company’s share and therefore have certain responsibilities towards the company. This is why their role in the process of corporate insolvency is extremely crucial.

If you are the director of a company, you need to be able to understand what these responsibilities are so that you can make sure that you come out unscathed from the corporate insolvency that your firm is going through.

The responsibilities of a director during corporate insolvency depend on whether the corporate insolvency has been declared voluntarily or whether it is being administered externally. It is important that you do not allow the company to take on more debt if there is a corporate insolvency situation. The only option at this time is to look for recapitalization or refinance if you can do so.

You should consider putting the firm in the hands of a voluntary administrator for corporate insolvency so that a third party manages the entire process. If the board of directors agree to declare corporate insolvency, they have to get a letter of consent from a registered liquidator to start the process.

When external corporate insolvency is administered, the directors automatically lose all control of the company. In such a corporate insolvency situation the directors are expected to show complete cooperation with the external administrator in order to move forward.