When a company is in financial difficulty, the risks of director’s change.
Being aware of, and responding to, these changes is vital. If these duties are not properly discharged, directors can suffer personal liability and/or disqualification. It is also important to be cognisant of directors’ duties if you represent a third party dealing with a distressed company (for example, a lender, supplier or customer). This will help you anticipate how the distressed company may behave in ongoing dealings and negotiations with you.
Directors’ duties considerations may influence:
- whether, and if so how, the company should continue to trade;
- whether to obtain specialist advice (such as contingency planning advice from an insolvency practitioner);
- the time available for key stakeholders to agree the terms of a financial restructuring or other measures; and
- what the company may and may not be able to do pending completion of a restructuring, during what is often referred to as the ‘twilight zone’.
