It is very important that directors and members are well-advised once a company gets into financial difficulties, and especially once it tips over into insolvency. Directors will need to be aware of their various duties to shareholders and creditors, while shareholders will want to try to keep the company out of insolvency to keep their equity alive.
Directors of companies which become, or are likely to become, insolvent are under a duty to maximise the return to the company's creditors. The relevant statutory provisions are contained in:
the Insolvency Act 1986 (IA 1986), and
the Company Directors Disqualification Act 1986
Pre-insolvency, the directors must also abide by the general duties set out in the Companies Act 2006 (CA 2006). The three most relevant to companies in financial difficulties include:
the duty to promote the success of the company for the benefit of its members as a whole
the duty to exercise independent judgment, and
the duty to exercise reasonable care, skill and diligence
When a company becomes financially distressed, and formal insolvency proceedings become more likely, the
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