Yes, you can be a director after an insolvent company closes and are free to start a new limited company, provided there has been no reason for disqualification. Directors wishing to start again after liquidating an insolvent company need to be aware of any restrictions and limitations if they wish to do this and what happens to the old company’s debts once it’s closed.

Why would a company enter liquidation?

A company may enter liquidation if it becomes insolvent. Company insolvency can occur when the company’s liabilities outweigh its assets, and it can no longer pay its debts when they fall due.

Insolvency processes such as Company Voluntary Arrangements (CVAs) and administration can help companies survive and avoid liquidation. However, if the company’s debts are of such a level that repaying them isn’t feasible, then opting to close the company voluntarily is preferable to creditors taking winding-up action.

Are directors liable for the debts of the liquidated company?

Limited companies come with limited liability protection. This protection means that the limited company is considered a separate entity to its directors. Consequently, if the company gets into debt, the directors’ personal finances won’t be affected.

There are circumstances where the limited liability can be bypassed, like if you’ve signed a personal guarantee. Money may also be due back to the company if it has an overdrawn directors loan account, or is found to have traded whilst insolvent.

Can you still be a company director after liquidation?

While liquidating an insolvent company will end a director’s formal association with it, former directors can still act as a company director after liquidation. If the director of the liquidated company serves as a director in another company, they can still hold that position afterwards.

Once the insolvent company is liquidated, the former director can establish a new limited company. This could be in a different, pre-existing company or a new one established after liquidation.

Additionally, once the company enters liquidation, its assets are individually and independently valued. The director of the liquidated company can buy the assets back at market value if they possess the necessary funds.

If a director doesn’t take the action necessary to tackle an insolvent company’s debts, the company’s creditors can force it into compulsory liquidation through a winding-up petition. The company’s bank accounts freeze, and trading ceases. During a compulsory liquidation, the liquidator scrutinises the director’s actions, and any evidence of wrongdoing could lead to prosecution. However, if the director is found to have acted appropriately, they could start a new limited company after the liquidation concludes.

Reasons for director disqualification

Under normal circumstances, insolvency shouldn’t stop someone from being a company director after liquidation. However, depending on how a director has acted during or before the insolvency, there may be grounds for director disqualification, which lead to a ban of up to 15 years and the loss of the limited company’s limited liability protection.

Potential reasons for director disqualification

• Wrongful or fraudulent trading
  A company would be wrongfully trading if its directors allow it to continue trading despite the insolvency and no viable way of repaying its debts. Directors should apply for an appropriate insolvency procedure should this happen. Fraudulent trading, similarly, occurs when directors attempt to defraud customers and creditors, making promises it knows the company cannot meet.
  More on wrongful, insolvent, and fraudulent trading
• Using company money for personal benefits
  Directors are allowed to borrow money from their own company via a directors’ loan account. However, this needs to be repaid; otherwise, it becomes overdrawn, which can be an issue during insolvency. A director could be banned by the Insolvency Service if the liquidator finds they have used company money for their own benefits to the detriment of the company.
• Failing to keep accounts
  All companies need to file accounts and keep records. Failing to do either of these can have serious repercussions from both the Insolvency Service and HMRC.
• Bankruptcy restrictions
  UK-based limited companies cannot go ‘bankrupt’ in the same way as those in the USA. However, if someone enters personal bankruptcy, they cannot act as a limited company director without the court’s permission.
  More on bankruptcy

How we can help close your company

If a company is struggling with debts that it has no hope of repaying or recovering from, directors should act quickly to limit the impact on their personal finances. If you’re a director worried about a liquidation’s long-term consequences, or you need help understanding your company’s current circumstances, speak to us today for free, impartial, non-obligatory advice. We can assess your company’s situation, and help find you the best solution, tailored to your circumstances.

• Closing the company via liquidation
  If a company’s debts are of such a level that recovery isn’t feasible, speak to us about a Creditors Voluntary Liquidation (CVL). A CVL quickly removes creditor pressure, stops legal action and allows the company to close in an orderly manner. Once the process is complete, the debts die with the company. The directors may start a new limited company should they wish to.
  How to initiate a Creditors Voluntary Liquidation (CVL)
• Purchasing the old company’s assets and starting again
  Depending on the company’s circumstances, the directors may be able to repurchase some of the old, liquidated company’s assets at market value and use them to start a new limited company, sometimes referred to as setting up a ‘phoenix company’. The process is called pre-pack liquidation and can be controversial. However, it has benefits when used appropriately.
  Directors may want to use the same company name. However, reusing the insolvent company’s name in a new limited company can be complicated. Strict guidelines exist around using the same name or a similar name to the old company.
  More on pre-pack liquidation

In summary

A company can enter liquidation when it hasn’t the money to repay its liabilities, and repaying the debt or restructuring the company isn’t sufficient. If there’s no evidence of wrongdoing after the old company closes, its director can still be a company director after liquidation if they form a new one. Directors should act quickly and decisively in the company’s best interests to minimise the risk of accusations of wrongdoing, including wrongful and fraudulent trading.

Case Studies

M J Squire Limited

Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)

A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.

However, recently it has been forced to close due to the downturn in the construction and retail industry.

The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.

Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.

February 10^th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.

Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.

Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case. 

“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”

“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”

Statestrong Limited

Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)

Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.

Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.

Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.

The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.

Mr Blaikie said:

“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”

Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.

Kelly Burton, said:

“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”

Derwent Castings Limited

Kelly Burton • Metals • Creditors Voluntary Liquidation (CVL)

Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher than the expected dividend of 60p in the pound.

A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.

The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.

Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.

Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.

Andy Wood, associate director and insolvency practitioner at Wilson Field said:

“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.

“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.

“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”

Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.

However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.

In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.

Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.

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