Making the best of a bad situation

John O'Sullivan, Partner
Recovery & Insolvency

Blame and accountability are hot topics in the world of corporate failure, but there are degrees to which people are penalised for their actions.  Some directors can feel the full force of the law. Others could be seen to be getting off lightly and without being held to blame legally, despite their companies incurring huge losses. In fact, the only criticism these directors attract is for lack of commercial acumen.

The reason? Some directors make it their business to get all the professional advice and financial information they can muster to limit the extent to which they may be held accountable for failure.

Undoubtedly a sensible approach. But back in the real world, at the less glamorous end of the corporate market, where management are not professional directors and do not have easy and unlimited access to professional advice, legal blame often does attach. Claiming not to know or understand the law is - sadly for them - no defence. The most common pitfall for these directors is continuing to trade when there’s no reasonable prospect of avoiding insolvent liquidation – known as wrongful trading. By ignoring the warning signs and carrying on running up debts, these directors risk personal liability as well as disqualification.

An intimidating thought, then, for those who have unwittingly fallen into directorship roles, or who are otherwise unclear about their responsibilities. For these, the real challenge at the moment is recognising when to call it a day. It’s rarely a black and white issue and the temptation amongst those who know something about the risks of wrongful trading, may be to walk away from an ailing business too early.

My advice is to take stock, get some sound advice and don’t underestimate the role directors can play in transforming the fortunes of their companies. Recognising that there is a problem is the first step. The next is to get hold of all the available financial information and prepare a survival plan, ideally with the help of professional advisors. This is a great way of focusing minds and provides a measuring stick against which progress can be assessed. It’s also vital that a written summary of all board and other management meetings is produced so that there’s clarity about what was decided, by who and why.

The key, perhaps, is in judging when to ask for professional help. And the answer is unreservedly: as early as you possibly can. It really can make all the difference to you and your business.

For further information please contact John O'Sullivan T: 029 2047 4411 E: j.o'sullivan@capitallaw.co.uk