In recent years, we have seen directors’ duties in large companies under the spotlight, particularly in situations which lead to insolvency.
This is not an easy time for Directors to thread the “tightrope” between being answerable to shareholders, wanting to keep businesses alive and ensuring that cashflow is managed to pay all creditors.
In the event of financial and liquidity stress, directors must be careful to protect the interests of creditors to avoid reckless or fraudulent trading.
It is vital that Directors understand their roles and responsibilities. This understanding is key when making critical business decisions and considering how best to use limited cashflows.
Directors are often uncertain as to the right decisions to be making in the interests of the stakeholders. We believe Directors should:
- Seek professional advice
- Understand and regularly review the company’s financial position
- Support the decision making process with evidence and clear documenting of decisions
Finally, Directors may have no choice but to consider ceasing trading. While unfortunately some companies may no longer have a market for their goods/services, other factors may include no stakeholder support provided or available.
Directors should seek the support of their accountant and legal advisor during this crisis to:
- Assist with maintaining viable businesses affected by Covid-19 pandemic
- Help advise and protect the Directors in performing their duties
- Assessing options for companies to struggle to stay out of insolvency