When a company becomes insolvent and is preparing to enter liquidation, it is essential that any remaining company funds are properly protected. This includes cash in the bank, proceeds from the sale of company assets, or any payments received from debtors. Even if trading has ceased or turnover is minimal, directors remain legally responsible for the conduct of the company during this period. Molly Monks of Parker Walsh, a licensed insolvency practitioner, advises that safeguarding these assets is one of the most important steps directors can take.

Handling Company Funds During Insolvency and Liquidation

Directors must be particularly careful when managing company funds once insolvency is clear. Even small amounts of cash or proceeds from asset sales are considered part of the company’s estate and must be treated in accordance with insolvency law. Any mismanagement or inappropriate use of these funds can carry serious consequences. Molly recommends that directors do not attempt to handle or distribute remaining company funds themselves, but instead seek professional guidance immediately.

Director Responsibilities and Potential Liabilities

Upon entering liquidation or administration, the conduct of every director is reviewed. This scrutiny ensures that directors have acted appropriately throughout the winding down process. Even unintentional mistakes can lead to personal liability or disqualification. Protecting company assets is a core responsibility, and directors are accountable for every decision made during this time. Molly Monks emphasises that directors should act with caution and ensure all actions are fully compliant with the law.

Importance of Seeking Professional Advice

Professional guidance from a licensed insolvency practitioner is critical during insolvency. Molly strongly advises directors to consult an IP before taking any steps involving company funds or assets. Tailored advice ensures directors avoid personal risk and comply with legal requirements. Working closely with an insolvency practitioner provides clarity, reduces stress, and ensures that assets are handled in accordance with legal priorities.

Common Pitfalls: Creditor Pressures and Preference Payments

Directors often face pressure from creditors, particularly if those creditors are aggressive or threatening. It can be tempting to use remaining funds to satisfy the most persistent creditor. However, making such payments can constitute a “preference,” which unfairly favours one creditor over others, including HMRC or additional suppliers. Preference payments are prohibited under insolvency law, and directors who make them, even unintentionally, may face personal consequences. Molly warns that the safest approach is to avoid handling funds directly and to allow the appointed liquidator to manage all distributions.

Recommended Course of Action

To minimise risk, directors should not attempt to manage or distribute company funds themselves. The safest course is to preserve all remaining assets for the appointed liquidator. Molly Monks of Parker Walsh advises that engaging a licensed insolvency practitioner ensures the correct handling of company assets and protects directors from potential liability. The liquidator will distribute funds in accordance with legal priorities, removing the burden and responsibility from directors and ensuring a compliant, orderly process.

Conclusion

Directors of insolvent companies face significant responsibilities and potential liabilities. The most important steps are to seek professional guidance from a licensed insolvency practitioner such as Molly Monks of Parker Walsh and to refrain from handling or distributing company funds. By allowing a liquidator to manage the assets, directors reduce personal risk, comply with insolvency law, and ensure that creditors are treated fairly. Protecting the company’s remaining assets and following professional advice is the most effective way to navigate insolvency and liquidation with confidence.

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