Here are the most frequent breaches we see and how as a professional advisors can help prevent them.

Trading whilst insolvent

• What is it:  Continuing to trade when the company cannot pay its debts as they fall due or when liabilities exceed assets.  This isn’t an insolvency offence in the Insolvency Act but it has become a ground under which directors can be disqualified.
• Why it happens:  Directors often hope to trade out of difficulty, unaware that they’ve crossed the insolvency threshold.  They may continue placing orders, signing contracts or incurring liabilities – all of which can expose them to personal claims.
• How you can help:  Encourage directors to assess solvency regularly and seek advice at the first signs of trouble.  If insolvency is likely, trading decisions must be made with extreme caution – ideally under the guidance of an insolvency practitioner.

Preference payments

• What is it:  Paying one creditor ahead of others, especially if that creditor is connected to the company (e.g. a director, family member or related business).
• Why it happens:  Directors may feel pressure to repay loans from friends or family or prioritse suppliers they have long-standing relationships with but this can be challenged in a formal insolvency process and may be reversed.
• How you can help:  Advise clients to avoid favouring any creidtor once insolvency is suspected.  Payments should be made fairly and transparently with professional input.

Failure to maintain adequate financial records

• What is it:  Not keeping proper books and records, including cash flow forecasts, board minutes and creditor communications.
• Why it happens:  In distressed companies directors may focus on firefighting rather than documentation but poor records make it harder to defend decisions and can lead to disqualification or personal liability.
• How you can help:  Ensure your clients maintain up to date financial records and document all key decisionsw.  This is especially important if insolvency proceedings are likely.

Delaying action or ignoring warning signs

• What is it:  Failing to act when insolvency is foreseeable – for example, ignoring mounting debts, creditor pressure or HMRC arrears.
• Why it happens:  Directors may be emotionally invested, optimistic or simply unaware of their legal obligations but delay can reduce rescue options and increase personal risk.
• How you can help:  Encourage early intervention when insolvency looms, the sooner a director seeks advice the more options they’ll have – including turnaround strategies, informal arrangements or formal insolvency procedures.

Lack of independent advice

• What is it:  Relying solely on internal avice or informal networks rather than seeking regulated and impartial advice.
• Why it happens:  Directors may not realise the seriousness of their sutation, or may fear the stigma of insolvency but without professional input they risk making decisions that breach their duties and become personally liable.
• How you can help:  Refer clients to a licensed insolvency practitioner as soon as insolvency is suspected.