After liquidation closes the company, ending its life and debts, can its directors take similar roles in a new or existing company?

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  • Closing the company in an orderly manner.
  • Dealing with HMRC and creditor pressure.
  • How to move on after the liquidation.

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    Can you still be a company director after liquidation?

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    Once an insolvent company closes its doors, those behind it might be eager to start again but may be unsure whether they can still be a company director after liquidation. Soon to be former directors need to be aware of any restrictions and limitations if they wish to start again 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.

    More on closing a limited company

    Are directors liable for the liquidated company’s debt?

    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.

    Directors’ personal liability for company debt
    Can you still be a company director after liquidation?

    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.

    What happens after liquidation

    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.

    Government guidance on director disqualification
    Committing the following may not automatically lead to director disqualification. The Insolvency Service will decide whether a director has neglected their duties on a case-by-case basis.

    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.
      A suspension on wrongful trading laws to help companies struggling with covid-related debts is in place until September 30th 2021.
      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.
      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.

    FAQs

    Can you reuse the old company name after liquidation?

    If directors choose to start a new limited company after liquidating the old one, they 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.

    Reuse of a company name after liquidation

    Can you still be a company director if the company goes into compulsory liquidation?

    If a director doesn’t take the action necessary to tackle an insolvent company’s debts, then the company’s creditors can force the company into compulsory liquidation through a winding-up petition. The company’s bank accounts freeze and the company ceases to trade. During a compulsory liquidation, the director’s actions will be scrutinised by the liquidator, 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.

    More on compulsory liquidation

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