Help for directors
If your company is under financial pressure, acting early gives you the most options and best protects your position. We help directors understand their duties, weigh the choices and take the next step with confidence.
Warning signs
Signals it is time to seek advice
Few companies fail overnight. More often the pressure builds gradually, and the warning signs are visible well before a company runs out of room. If several of the following feel familiar, it is worth having a confidential conversation sooner rather than later.
- Struggling to pay creditors on time, or paying only the suppliers who shout loudest.
- Using GST or PAYE money to fund day-to-day operations rather than setting it aside.
- Persistent trading losses, or a balance sheet that has slipped into negative equity.
- Demands, repeated reminders or a statutory demand from a creditor.
- Heavy reliance on a small number of customers, or on a single large contract.
- No clear, up-to-date cash-flow forecast, so you cannot see what is coming.
- Finance declined, an overdraft at its limit, or a lender asking hard questions.
- Falling behind with Inland Revenue, or an arrangement you can no longer keep.
None of these on its own means a company cannot be saved. Taken together, they are a sign that it is time to take stock and get an honest read on where things stand.
Your duties as a director
What the Companies Act 1993 requires of you
When a company is in difficulty, your duties as a director come into sharp focus. The Companies Act 1993 sets out a number of obligations. The ones that matter most in this context are summarised below in plain English.
In short: keep your creditors in mind, don't dig the hole deeper, and take advice early. Do that and you are well on the way to meeting your duties.
Act in good faith and in the best interests of the company
Section 131 requires each director to act in good faith and in what the director believes to be the best interests of the company. As a company approaches insolvency, the interests of creditors become increasingly relevant to that judgement.
Do not trade recklessly
Section 135 provides that a director must not agree to, or cause or allow, the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company's creditors. This is the duty often described as the duty against reckless trading.
Do not incur obligations you cannot meet
Section 136 provides that a director must not agree to the company incurring an obligation unless the director believes, on reasonable grounds, that the company will be able to perform it when required to do so.
Exercise care, diligence and skill
Section 137 requires a director to exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances, taking account of the nature of the company, the nature of the decision, and the position and responsibilities of the director.
Serious breaches of these duties can lead to personal liability, where a court may order a director to contribute to the company's losses. Acting early, taking advice, and carefully recording the basis for your decisions are the best ways to meet your duties and protect your position.
Your options
The paths available to a company in difficulty
The right path depends on whether the business is viable, how much pressure it is under and what its creditors are owed. We explain each option in plain English and help you choose.
Business recovery and turnaround
Practical advice taken early, while options remain, to help a viable business trade through difficulty and stabilise its position.
Learn moreVoluntary administration
A statutory pause under Part 15A of the Companies Act 1993 that gives a company breathing space to consider whether it can be saved or restructured.
Learn moreCreditors compromise
A binding arrangement with creditors under Part 14 of the Companies Act 1993, a flexible alternative to liquidation for restructuring company debt.
Learn moreLiquidation
An orderly process to wind up a company that cannot continue, dealing fairly with creditors and bringing matters to a proper close.
Learn moreWhen to seek help
The earlier the better
The single most useful thing a director can do is seek advice early. The further ahead of a crisis you act, the more options remain open, and the more room there is to protect the company, its creditors and your own position.
You do not need to have all the answers, or even all the figures, before you get in touch. If you are worried, that is reason enough to talk. A first conversation with us is confidential and free, and there is no obligation to take any further step. We will listen, ask a few questions and give you an honest read on where things stand.
Common questions
Questions directors often ask
Could I be personally liable for my company's debts?
As a general rule, a company is a separate legal person and its directors are not personally liable for its debts. That protection can be lost in particular circumstances, including where you have given a personal guarantee, where you have breached your duties as a director, or where the law allows a court to make a director contribute. This is why acting early and taking advice matters. We can help you understand whether any of these risks apply to your situation.
What is reckless trading?
Reckless trading refers to the duty in section 135 of the Companies Act 1993. A director must not agree to, or cause or allow, the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company's creditors. It is judged objectively, by reference to what a reasonable director would have done. Continuing to trade while a company is in difficulty is not automatically a breach, but doing so without a proper basis can be. Taking advice early helps you make and record decisions carefully.
My company cannot pay its debts - what should I do?
If your company cannot pay its debts as they fall due, the most important step is to seek advice promptly rather than waiting. Acting early gives you the widest range of options, from turnaround and a creditors compromise through to voluntary administration or liquidation, and helps you meet your duties as a director. A first conversation with us is confidential and free, and we will give you an honest view of where things stand.
Will talking to you put my company into liquidation?
No. An initial conversation is simply advice. We set out the realistic options and what each one would mean for you, the company and its creditors, and the decision about what to do next remains yours. In many cases there are steps short of liquidation worth considering, particularly when you seek advice early.
Will I lose my house?
In most cases, no. A company is a separate legal person, so its liquidation does not itself take your personal assets. Your home is generally only at risk if you have given a personal guarantee or borrowed against it to fund the company. Every situation is different, which is why we review any guarantees and personal exposure with you in the first conversation, which is free and confidential.
Can I be a director of another company again?
Yes, in most cases. A liquidation on its own does not ban you from being a director of another company. Bans and prohibitions arise only in more serious cases, for example a breach of directors' duties or the phoenix trading restrictions under the Companies Act 1993. Most directors we work with go on to run other businesses. If you are unsure whether any of these risks apply to you, we can talk it through.
Who pays your fees if the company has no money?
In an insolvent liquidation our remuneration is generally paid from the company's assets, not from your pocket. If the company has few or no assets, we discuss that openly with you before anything is signed, so there are no surprises. The first conversation always costs nothing.
Worried about your company?
A short, no-obligation conversation is often the most useful first step. We will tell you honestly whether we can help.