5 top tips to protect your reputation as a company director
If your company is forced into an insolvency process much more than your house or savings could be on the line. As we have seen with the case of Philip Green, the mogul behind the BHS retail empire, you could be held out as guilty by the authorities and the media without trial.
As a director with prominence in a local business community keeping your reputation unblemished can be more important than having to pay up under personal guarantees. Your family, friends and associates could all be affected.
No business is immune to financial problems and distress. Circumstances beyond the control of directors such as bad debts or sudden changes in the market can easily lead to a terminal situation. How can you prevent a negative turn of events spreading sepsis beyond the realm of your business and personal finances?
- Make sure you keep adequate books and records
As a director or an entrepreneur you probably feel that maintaining books and records is an activity that you can delegate to an employee or outsource altogether. However, maintaining management accounts and adequate books and records is a legal obligation of all directors. Well kept minutes, accounts or cashflow projections could well stop a wrongful trading claim or an unfit conduct investigation dead in the water.
When going through an insolvency process many insolvency practitioners will uplift your company's records and consign them to archive storage. Great if you don't need to access them but in the process papers can get mixed up so it is a good idea to retain copies of key documents and make copies of hard drives.
- Take professional advice and follow it
In a complex world with thousands of pages of statues, rules and regulations no director can be completely aware of what's required of them and their company to ensure that everything is above board. This is why most directors have access to legal, accounting and other experts to offer professional and accurate advice on any number of matters.
If your company is facing financial difficulties and you receive such advice it is vital to ensure that you get it confirmed in writing and follow it or have (and record) goods reason not to. This is especially important when it comes to selecting the best insolvency practitioner to handle your case. If your business is distressed then engaging the right practitioners early enough in the process will help guard against any subsequent allegations of wrongful trading or attempts to disqualify you as a director.
Your current advisors can recommend the best insolvency practitioner to engage on your behalf. No matter who you choose it is vital to check they are properly qualified with a good, substantiated reputation. If you end up dealing with the Official Receiver make sure that you seek legal advice before answering even the most basic enquiries, questionnaires or interview into your conduct. There are lots of red lines to avoid and you do not want a misunderstanding to open new lines of enquiry that could further expose you to liability.
- Don't blame your advisors
Many directors have trusted accountants or other professional advisors that they have worked with for a number of years but they are not in any way legally responsible for your company's situation - you are. Accountants and other advisors can only recommend a course of action. The final decision remains your responsibility.
- Avoid burying your head in the sand
If you allow your company to carry on trading whilst incurring losses and running up additional credit after clear indications that it was headed for liquidation you could become personally liable. You simply don't and shouldn't have to take that risk. See a solicitor or licensed insolvency practitioner. A problem shared is a problem halved.
- Look for warning signs
The risk of being publicly exposed as a negligent company director goes up exponentially if your company is insolvent or worse has gone past the point where it cannot avoid insolvent liquidation. If this is the case and you continue trading you need to be sure of both your motivations and outcomes and take advice. The key warning signs are:
- Having to run your business to maximise cash flow rather than profit.
- Your company not being able to pay creditors as they fall due.
- Having a negative company balance sheet.
- Not having a credible plan that shows your company can trade out of financial difficulties.
- In conclusion - whilst there are many examples of directors of companies that face insolvency coming under public scrutiny if you take the right care and attention then you will not only avoid possible damage to your reputation but also avoid becoming personally liable for your company's debts.
There is never a good time to watch your company become insolvent nonetheless by taking early professional advice and keeping good records of the reasons for your decisions you should have nothing to fear from the process.