When an Administrator is appointed they take over the running of the company. The Directors are only allowed to act on instruction from the Administrator. Their fate depends on the proposals put forward by the Administrator and how these are implemented.
- Do Directors carry on working during Administration?
- Can Directors take on similar roles in other companies?
- What happens if the Company is Closed?
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The Affect on Directors if the Company continues to trade
The Administrator and creditors may agree that part or all of the company should continue to trade. In these circumstances restructuring is likely to be required. As a result the Directors may be made redundant or dismissed.
If all or part of the company is sold the associated directors will be transferred to the new owner under TUPE. The Transfer of Undertakings (Protection of Employment) rules require the purchaser to take on all current employees including directors.
If the directors of the old company do not want to work for a new owner they may resign of their own accord or take redundancy. Redundancy packages must reflect the terms and conditions of the Director’s contracts which transferred with them.
The affect on Directors if the Company is closed
If the Administrator decides to close the company they will appoint a Liquidator. The Liquidator will dismiss the directors. The company may or may not have the funds required to pay redundancy packages.
A director may owe money to the company in the form of an outstanding Directors Loan. If this is the case the Liquidator will ensure collecting of these debts. They will take legal action against the director to enforce repayment if necessary. The directors will also become responsible for any debts they have personally guaranteed.
The Liquidator will also produce a report on the conduct of the Directors. This will be submitted to the Insolvency Service. Further investigation into the director’s conduct may be undertaken if the Liquidator suspects wrongful trading.
Can Directors work for other Companies during Administration?
The fact that a company has gone into Administration does not automatically mean that the directors are dismissed. However the influence they have in the distressed company will be limited to that allowed by the Administrator. Despite this they are free to continue in their roles as directors of other companies.
If a Company goes into Administration there is nothing to prevent the Directors taking up new positions as directors in other companies.
The only time a director’s ability to act as a director might be put at risk is if as a result of Administration the company is put into liquidation. If a director is deemed to have acted improperly the Insolvency Service may seek a Court Order to ban them from acting as a director. If upheld this would prevent them from all directorships for between 2 and 15 years.