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If you are a Director of an insolvent company, Oliver Elliot can help you address your concerns arising from Director Conduct Reporting In A Liquidation.

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Overview Of Director Conduct Reporting In A Liquidation

It is a statutory duty of a Liquidator to issue a confidential report on the conduct of the Directors in a Creditors Voluntary Liquidation (and an Administration) to the Department for Business, Enterprise and Regulatory Reform.

What Is Director Conduct Reporting In A Liquidation?

In a Creditors Voluntary Liquidation, the Liquidator MUST file a Directors Conduct Report with the Department for Business, Enterprise and Regulatory Reform.

Section 7A of the Company Directors Disqualification Act 1986 requires the Liquidator (or an Administrator in the case of a company that has gone into Administration) to issue a Director Conduct Report in respect of any individual who was a Director of the insolvent company at the date of Liquidation and on anyone who has been a Director in the 3 years prior to the start of the Liquidation.

This provision was brought in through Section 107 of the Small Business, Enterprise and Employment Act.

Extended Period Of Conduct Consider

These new regulations extended the period prior to insolvency for the Liquidator (or Administrator) to consider from 2 to 3 years.

What Conduct Is Considered?

The range of unfit Director conduct is wide but can include:

  • Wrongful Trading
  • Trading To The Detriment Of the Crown
  • Failure to Keep Company Books And Records
  • Transactions Moving Assets To The Detriment Of Creditors
  • Compliance and Tax Filing Failures

In view of many companies now going into Voluntary Liquidation because they can’t pay a Bounce Back Loan there is now a section in the questionnaire to be completed for the Insolvency Service by a Liquidator that asks questions about any Covid finance obtained. An Insolvency Practitioner is obliged to highlight significant issues such as a Bounce Back Loan obtained when a company did not have sufficient turnover or which has been used by a Director personally instead of being deployed for the benefit of the business.

Why Is Director Conduct Reporting In A Liquidation A Requirement?

Director Conduct Reporting in a Liquidation is required as part of a Liquidator’s public role to assist the government in deciding whether or not the conduct of the Directors makes them unfit to be company Directors and to be subject to Director Disqualification.

When Must The Liquidator Issue The Report?

The Liquidator (or Administrator) must issue the Director Conduct Report to the government department within 3 months of the start of the Liquidation or Administration.

Extension To Shadow Directors

It is now the case that Shadow Directors are caught by these reporting regulations that an Insolvency Practitioner MUST comply with.

Online System Of Director Conduct Reporting

Previously under The Insolvent Companies (Reports on Conduct of Directors) Rules 1996 the Liquidator would file a physical report in the form set out in the legislation and express a view as to whether or not the conduct of the Directors was fit or unfit.

Now, this process has been replaced via an online system of reporting in what is known as the Director Conduct Reporting Service. Whilst this means that Insolvency Practitioners no longer have to express a professional opinion, it does mean that all reports are likely to be reviewed by the Insolvency Service.

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This page: Director Conduct Reporting In A Liquidation is not legal advice and should not be relied upon as such. This article Director Conduct Reporting In A Liquidation is provided for information purposes only. You can Contact Us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.