The answer to the question, Can I Walk Away From My Company As A Director? is it depends. You often can but in most cases when the company is insolvent it is not a good idea, particularly if it is about to go into liquidation.
The idea of a director abandoning the ship and walking away from their insolvent company in such circumstances is a potentially risky approach. On the face of it, it does not seem the right thing to do particularly if the company is to go into insolvent liquidation shortly after that.
Such an approach would not enable the director to avoid the consequences of any recent conduct they might be concerned about. It is misguided to think resigning would free a director from the misconduct. It would do nothing of the kind and potentially seem irresponsible conduct.
Why Would A Director Walk Away From A Company?
Why even would a director ask the question Can I Walk Away From My Company As A Director? in the first place without securing or sorting out the future of the company.
It is one thing if a director is resigning because they have had enough of running a company and there are other directors on the Board who have plans for the company to take it forward and revitalise or restructure it.
On the other hand, a director trying to sidestep the effects of insolvency and obligations by resigning shortly prior to handing the company over to a liquidator could be in for a rude awakening. Directors’ duties mean a director has to act in the best interests of the company, so trying to walk away in the hope you can avoid the unwelcome effects and responsibilities of liquidation does not appear consistent with that obligation.
Liquidator Duty To Investigate A Director Who Has Resigned
A liquidator has to investigate the conduct of all directors for the last three years prior to the date of liquidation as a matter of law under Section 7A of the Company Directors Disqualification Act 1986 and report on such directors to the Insolvency Service.
It is therefore futile for a director to walk away at the point the company is sinking. Whilst it will enable them to avoid having to sign up to the statement of affairs in a voluntary liquidation and the SIP 6 report for creditors, it nevertheless means they lose the ability to influence the presentation of such documents.
Resigning As A Director In A 50/50 Company When There Is A Dispute
When two directors who run and own a 50/50 company have fallen out, if one of them resigns the remaining director could potentially look to put the blame on the one who has resigned for the insolvency.
Once a director resigns from a company they must surrender control of the books and records to the remaining director(s). To resign and therefore leave control of the books and records of the company in the hands of the other director who you might not trust could be risky. A director might be better to stay in office and ensure the records are properly kept and maintained. This could be particularly relevant if they are concerned about the conduct of the other director.
Legal Requirement For At Least One Director
There is a legal requirement for a limited company to have at least one director under Section 154 of the Companies Act 2006.
If a director did resign nevertheless, this would have to be included in the liquidator’s report on the conduct of the director to the Insolvency Service.
What About The Effect Of Resignation On Shadow Or De Facto Directorship?
To resign a director terminates the appointment as director by filing form TM01 at Companies House. However, this is only the official resignation of a director. It is not necessarily the end of their directorship if they continue to act as either a shadow or de facto director.
A director registered a Companies House is by far the most common type of director. However, there are as a matter of law two other types of directors can exist. A shadow director under Section 251 of the Companies Act 2006 is a director who the official directors are accustomed to act. The other type of director is the de facto director arises when the person who although not registered as a, official director nevertheless holds themselves out to be a director.
In such circumstances, they may be held to still be a director notwithstanding their resignation. They could be liable for any misconduct arising since their resignation as a result.
Resigning When A Director Has A Personal Guarantee And Tries To Walk Away
When a director resigns from a company in respect of which he or she has provided a personal guarantee to a creditor in respect of a company debt then resigning as a director will usually have no impact.
If the company owes money to the creditor and then goes into liquidation and the personal guarantee has not been withdrawn then the director who has resigned will usually remain personally liable for the company’s unpaid debt.
Potentially it could be risky for a director to resign from a company without resolving their personal guarantee position on liquidation and insolvency. They risk a loss of control of the company when they resign. It would therefore be possible for the remaining directors to run up a debt with the creditor that had been guaranteed without the resigning director having any say or knowledge. Yet if the company went into liquidation they could be hit with a substantial unexpected liability.
It is therefore important for a director to consider taking professional advice before resigning if they have provided a personal guarantee.
Conclusion On Resigning As A Director And Walking Away Before Liquidation
In view of the risks and potentially negative prescription for a director who resigns in the hope they can walk away shortly prior to a company going into liquidation, it generally is something not to be recommended.
There might be circumstances where this would not apply but any director seeking to use the resignation as a mechanism to avoid the consequences of recent misconduct will typically find it ineffective.
