Can I be a director of multiple companies even if one is in liquidation?

Under company law you can be a director of multiple enterprises, regardless of whether one company is in liquidation. The Companies Act, 2006, also lays out your duties in directorship, and these include exercising “reasonable skill, care and diligence” when running a company.

Problems can arise for you as a director when, during the course of an insolvent liquidation, the office-holder investigates the causes of insolvency. This investigation forms a crucial part of the process - the overarching aim being to protect company stakeholders and the wider public from directors who deliberately, or through negligence, cause financial loss to others.

What form does an investigation take?

You will need to hand over all accounting records, bank statements and financial documentation, usually for the three-year period prior to insolvency. The liquidator may issue a questionnaire for you to complete and return, and request that you and other key officers attend in-person interviews.

Due to the potentially serious outcome of these investigations, it is important to seek professional advice and assistance when completing the questionnaire, and prior to interview. The liquidator will try to establish what happened to cause your company’s insolvency, and determine whether you and other directors are responsible in any way.

Areas of investigation will include:

• Wrongful trading: continuing to trade knowing that your company is insolvent or is approaching insolvency, or when you should reasonably have known.
• Preferential payments: repaying a creditor to whom you have provided a personal guarantee, for example, or paying one specific creditor over others.
• Transactions at an undervalue: gifting a business asset to someone, or selling it at less than its true value.

What powers does the liquidator hold?

In carrying out these investigations, the liquidator acts for the Secretary of State, with powers under civil law. Should they uncover evidence of fraud or other criminal activity, however, they can hand the case over to the police.

You should cooperate with the liquidator at every stage, providing them with the information requested as soon as possible. If accusations are likely to be made, you can help your own case by gathering supportive evidence in the form of documentation and statements from third parties.

What are the potential ramifications of an investigation?

• If the liquidator has any cause for concern following the investigation of your insolvent company, your other companies may also face investigation, particularly if criminal activity is suspected.
• Disqualification as a director for between two and 15 years – a huge issue as the director of multiple companies.
• Personal liability for some or all of the company’s debts, if creditors have sustained a material loss because of your actions.

If you are the director of multiple companies and require further information on what happens when one goes into liquidation, our licensed insolvency practitioners at Begbies Traynor can help. We work from 78 offices nationwide, and offer a free same-day consultation in complete confidence.