First things first, yes, you can become a company director again. It’s a common misconception that if your company fails and enters liquidation or administration, you cannot be a director in the future. Thankfully, this isn’t the case.
The only thing that would stop you being a company director again is if you behaved badly in a previous failure. For example, if you were fraudulent, put your own interests ahead of others or if you persistently did things that made the situation actively worse. In all the years we’ve been working in insolvency, this has only applied to a very small minority of directors.
Understanding the process
When a company is placed into administration or liquidation, there is an independent review of the company’s records and the decisions and actions of the directors in the last three years. From our experience, in the vast majority of cases, directors act in good faith, seek help when they need it and generally act reasonably. If a mistake is made, and if reasonable steps were taken to recover the position, either at the time or even following insolvency, it is very unlikely that those involved will be barred from being a director in the future.
For example, if a director has paid themselves a bonus that the company couldn’t really afford then this can normally be resolved by simply paying the money back. We can work with you to agree a plan and find a solution to most situations.
Also, a director who seeks our assistance is already acting responsibly. This signals good intent and also shows how they may have approached past decisions. In the rare circumstances that an issue is identified, we find that directors can usually demonstrate it was unintentional and are keen to resolve the position. As a result, most learn from their experience and not only continue to be company directors in the future but prove to be better directors.
Can I use the same company name?
The only other restriction you have when restarting is a law designed to stop the ‘phoenixing’ of companies. You’re not allowed to set up a company with a similar name or trading style for a period of five years after the company’s liquidation. This would apply, for example, if ABC Ltd went into liquidation but the directors then set up as ABC 2022 Ltd, trading as ABC. This would be too close to the original company name. Basically, the law is there to stop failure after failure, and customers seeing seemingly the same business doing the same thing.
However, the law also says there is an exception if you buy the assets in an ‘arms length’ transaction and the rights to the name, from an insolvency practitioner, dealing with the liquidation. This exception to the rule recognises that there are genuine cases where owners will try to restart and they’ll want to buy the rights, the name, the assets and the good will of a company. You must buy them at fair value and disclose to everyone that you’ve done that in a certain way. And, as long as its done fairly and that money comes into a pot to be distributed to the creditors properly, then there’s no problem.
Making the decision to restart
In the moment it will feel really hard, but we always look at what’s going to be the best call over a three year period. Whilst it’s painful today, you need to ask yourself a few key questions…
- In three years time, if I continue with the business, will I be in a better position?
- Is the business under so much pressure and so much debt that it’s not likely to recover?
- Is there a high risk it will fail?
- Even if I work really hard is there still a good chance the business won’t grow or make money?
- Will carrying on cause a lot more stress and anxiety?
Entrepreneurs put themselves at risk but in reality they’ve still got to pay for their bills and their mortgage. It’s hard work. So if, in three years time, there’s a good chance you might need to be back in this same room, it may well be easier to call it a day now and restart. Take the opportunity to build something in a slightly different image, something that’s more likely to succeed in three years.
We can facilitate that by presenting the paths available to you and dispelling any myths. People are locked into their businesses both financially and emotionally and we can offer both technical acumen and also an empathetic ear. Talking to us is a safe space to let out all your worries and concerns and, together, we can find the right path.
The benefits of restarting
Everyone is fearful of failure. Fearful they can’t be a director again and fearful of what people will say (Read our blog on failure here). However, there are many benefits to restarting and learning from previous experience.
One of the big things is that it focuses the mind on what you could have done differently. And often this can be something as simple as keeping on top of the numbers and spending more time with your accountant. Many people run their businesses out of their personal bank account with a few spreadsheets and they realise they didn’t keep a hold of their tax position and make a provision for it.
If they start again, those directors will hopefully learn from their mistakes and make sure they put some money aside for tax. Or ensure they have an extra meeting with the accountant every year. Alternatively, it might be realising that you should focus on the core business, and not branch out into new things.
Restart smarter and wiser
There’s often a lot of learning for directors who have failed for genuine reasons and overcome it, and got a credible plan to restart. If anything, a person who’s been through failure has some wisdom. They’re probably a better entrepreneur than they were before.
So, in summary, you can restart. You can be a director again. There’s nothing to stop you. The key thing is to take advice early and act on that advice, so you’re protected. Asking for professional help and acting on it will give you reassurance and stop you doing things that might make matters it worse.
Book your free consultation now
So, if you’re concerned about your financial situation, contact us today for a free consultation. You can arrange a time and a date that works for you and meet with a qualified insolvency practitioner. There’s also no need to travel, as we can run the meeting over Zoom or Microsoft Teams if you prefer. We’ll ask about the background circumstances and current financial position before giving you a no-obligation competitive quote.