Partner Article

Rise in distressed companies puts directors at risk

LATEST official insolvency statistics reveal an increase in the number of companies suffering significant signs of distress.

These tell-tale signs tend to fall into one of two categories – either a business is worth less on paper than it owes to its creditors, or it cannot pay its bills on time.

Both of these key indicators require urgent action by directors. Contrary to popular belief, businesses which fall into either category do not have to close down immediately.

But if the directors continue to trade, they must be certain that by doing so, they are putting the company - and crucially its creditors – in a better position.

“All too often we see businesses that have been showing serious signs of distress for a long time but have continued to trade without taking advice,” said Deborah Lockwood, of Sheffield insolvency and business turnaround specialist Graywoods.

“It is common so see businesses that have ploughed on without any sustainable rescue plan, despite clear signs that they are in difficulty.

“If company directors choose to continue to trade when they know that there is a risk that their creditors won’t be paid, they put themselves at risk of being found liable for the company’s debts.

“Taking advice at an early stage when the going gets tough can help ensure that companies have the best chance of survival.

“At the same time, company directors can ensure that they are doing the right thing and avoid making any costly mistakes.”

This was posted in Bdaily's Members' News section by John Highfield .