Can I resign as a director due to liquidation? You can resign as a director provided there is another director in office. A limited company must have at least one director due to Section 154 of the Companies Act 2006.
However, if you are resigning shortly prior to going into insolvent liquidation this might not make a great deal of difference other than to prevent you from having any control over the process in the build up to liquidation and of the company’s records. However, when there are disputes between directors this can have important implications for the resigned director.
Let’s have a look at the implications if you were to resign very shortly prior to liquidation.
Advantages Of Resigning As Director Due To Liquidation
Relief From Administrative Responsibilities Of A Director Who Resigns
The advantages of resigning as a director shortly prior to the company going into liquidation are you will be relieved of some of the administrative requirements, such as with placing the company into insolvency.
No Need To Prepare The Statement Of Affairs
Typically directors of companies going into liquidation have to prepare a statement of affairs which details the company’s assets and liabilities. If a director has resigned, then in the event of the company going into liquidation the director who has resigned will not have the obligation under Section 99 of the Insolvency Act 1986 to provide to creditors the statement of affairs.
Relieved Of Duty To Safeguard The Company’s Records
In essence, the day to day administrative duties applicable to the company in the build up to liquidation will no longer be the responsibility of the resigned director. Additionally, they will no longer be responsible for keeping the company’s books and accounting records or for maintaining them for the period after having resigned.
Whilst resigning as a director shortly prior to going into liquidation may appear attractive, it is not necessarily a position that is without risk.
Disadvantages Of Resigning As Director Due To Liquidation
Loss Of Control
Firstly, a key problem for a director who resigns is they lose any control they had over the company for the period of time before it is handed over to the person who will ultimately take over and act instead of the directors, ie. the liquidator.
Investigations By The Liquidator
This is a potentially serious disadvantage because at the point a decision is taken to place a company into liquidation it will usually cease trading. The effect of stopping trading is that when the liquidator investigates the conduct of the directors (which all liquidators do for insolvent companies), they will do so for all individuals who have been a director in the last three years regardless of whether they resigned or not. A director who has resigned loses control of the information they can provide to the liquidator to account for and justify their conduct during the period when they were in office as a director of the company.
Director Disputes
It is not unknown or indeed unusual for companies to go into liquidation after directors have fallen out. Commonly one director will blame the other for the downfall of the company. The director who has resigned will still no doubt want and need to ensure they can show their actions whilst director were in the best interests of the company. If they have resigned and the remaining director(s) have control of such information they will not know what might happen to it and if such documents could be manipulated and or even go missing.
The director(s) inevitably who will be first to supply information to a liquidator will be the director(s) who have not resigned. They will be able to get their version of the events before the liquidator first. This may be influential and set the way forward for liquidation.
Resigned Directors’ Duty To Cooperate With The Liquidator
Even if a director resigns prior to the company going into liquidation they will not be relieved of the duty to assist the liquidator. Under Section 235 of the Insolvency Act 1986 any person who has been a director of a company will have a mandatory statutory obligation to cooperate and assist the liquidator. Directors who may have resigned some time ago could well have very limited knowledge to be able to assist the liquidator in understanding the circumstances of the company’s demise and the circumstances of its insolvency. However, a director who has resigned shortly prior to liquidation will be likely much more of an important source of information for the liquidator.
Suspicion Of Walking Away Leaving It To Creditors
Resigning as a director very shortly prior to the build up to liquidation can be considered irresponsible and perhaps could event be viewed with some suspicion. It could be seen to amounting to a director attempting to walk away at the last minute leaving the creditors to fend for themselves.
