A director of a Window Company has given a director’s undertaking not to be a director of a Company, or take part, directly or indirectly, in the promotion, formation or management of a Company.
The director having allegedly taken advice concerning the indebtedness and ability of the Company to repay those debts continued to take customer deposits totalling in excess of £85,000 knowing that the Company would not, or would be unlikely to, fulfil those orders as the Company was insolvent.
What should have been done?
Having taken advice, the director, ought to have realised that the Company was unable to pay its debts as and when they fell due, and that the Company should enter some form of formal Insolvency or cease trading.
In particular the director should have ensured that no further credit was incurred, and taken every step to minimise the potential loss to the Company’s creditors.
It may be that the director, if taking the view that it may have been possible to trade out by the customer orders, should have ensured that the customer deposits were ring-fenced in some way, so that if the Company failed then those deposits could have been returned – thus making the Company’s debt position no worse.
Had the Directors ceased trading, entered immediate insolvency, or traded whilst seeking to ring fence the deposits, thus not creating further indebtedness then he may have possibly had a defence or obtained relief under the Companies Act such that the giving of an undertaking restricting his ability to be a director in the future could have been avoided.
Relief under the Act
The Companies Act provides that a Court may relieve a director for negligent acts, breach of duty or breach of trust if:-
· The director had acted honestly and reasonably and
· Considering all the circumstances of the case, the director ought fairly to be excused.