What Are Your Responsibilities as a Director When Liquidating Your Company?

Liquidating a company is a daunting task, filled with numerous legal and financial obligations that require careful consideration and planning. As a director, it is your responsibility to make sure that any actions prior to liquidation are carried out in accordance with the law and all stakeholders are protected. In this blog, we will explore the key responsibilities that directors have when deciding to liquidate their company.

Duty to Act in the Best Interests of Creditors

When a company is insolvent and unable to pay its debts, the interests of creditors take priority over those of shareholders. As a director, you have a legal duty to act in the best interests of creditors, and not to prioritize the interests of shareholders or other stakeholders. This usually includes not paying certain creditors preferentially to others, or allowing the company to incur new liabilities knowing they can’t be paid.

Duty to Provide Accurate Financial Information

Directors have a statutory obligation to ensure that their company’s accounts are accurate and up to date. When liquidating a company, this duty becomes even more important, as creditors and liquidators will be relying on the company’s financial information to assess its liabilities and assets. Failing to provide accurate financial information can constitute a breach of duty, and could result in serious legal consequences.

Duty to Cooperate with the Liquidator

As a director, you have a duty to cooperate fully with the liquidator appointed to oversee the liquidation process. This means providing the liquidator with all necessary information and documentation, and assisting them in carrying out their duties. Failure to cooperate with the liquidator can result in legal action being taken against you, and can also delay the liquidation process.

Duty to Avoid Insolvent Trading

One of the most important responsibilities that directors have is to avoid insolvent trading. Insolvent trading occurs when a company continues to operate while it is insolvent, and can result in directors facing personal liability for the company’s debts. To avoid insolvent trading, directors must ensure that they take prompt action to liquidate the company as soon as it becomes insolvent.  When it doubt, directors should seek advice from an insolvency practitioner or other relevant professional.

Duty to Consider Employees’ Entitlements

Finally, directors have a duty to consider the entitlements of their company’s employees when liquidating the company. This includes ensuring that employee entitlements such as wages, superannuation, and redundancy payments are paid out in full, and that the company complies with all relevant employment law requirements. Failure to do so can result in legal action being taken against the company and its directors.

Final thoughts

In conclusion, liquidating a company is a complex process that requires careful consideration and planning. As a director, it is your responsibility to ensure that the process is carried out in accordance with the law, creditors are paid, and the interests of all stakeholders are protected. By understanding your key responsibilities and taking prompt action to fulfil them, you can ensure a smooth and successful liquidation process, and avoid any legal or financial consequences. If you require further advice or assistance in dealing with a company liquidation, don’t hesitate to seek the help of a professional.