When the question arises about legal liabilities in almost any situation, there is going to be a “however.”
If this discussion is about officers and directors of a corporation being financially liable, the “however” comes as part of the answer. Generally, the corporation is its own legal person with its own debts and liabilities. Only the corporation owes the money for those debts and liabilities.
However, the directors may have personal liability if they fail to follow the laws and regulations of corporate governance. Their standing is specified in the governing documents of the company. Those who are in this position may still want to have experience on their side when the business they’re associated with struggles to pay debts and/or has a negative net-asset position. At this time, it’s important to work with professional solution providers for companies at risk.
When you’re searching for guidance on directors’ legal liabilities and you talk to a specialist, you’ll learn that there are common warning signs when a business may be at risk. They can advise you on the path to take when there is a loss of a key account, when there are unrealistic assets on the balance sheet, when debts continue to rise during a period of slow growth, etc. These signs don’t always mean that the company is beyond recovery because catching them early in the process may allow time for a turnaround.
It’s essential for the director to understand being held accountable if he or she doesn’t take the correct action when he or she knows (or should know) that the company was insolvent. Obviously, the individual involved should seek advice as early as possible so that financial liability is reduced. It’s crucial to avoid trading recklessly and risking financial loss to the company’s creditors. To state the issue in basic terms, the director mustn’t allow the business to make a transaction that creates risk of loss to creditors.
You can learn more about this special service by working with one of the leading experts in business recovery and liquidations, including situations when the director continued to trade an insolvent company. In some cases, the director or shareholder has, before liquidation, advanced capital to help with short-term cash flow yet has no security for that financial assistance. At this point, the individual should seek legal advice on the proper steps for obtaining and registering that security.
If you’re a director who has questions about this process or doubts about your actions or status, you may want to learn more by visiting the website of a well-known specialist in business turnaround, restructuring, and insolvency. As you browse, look for an indication of the decades of experience that these specialists bring to the task. You should also look for certifications and accreditations to show that you’ll be working with members of Chartered Accountants Australia and New Zealand as well as respected groups such as RITANZ and other public practice organisations.