Director’s Conduct Report In A Liquidation Or Administration
A director’s conduct report is part of the company liquidation or administration process. In this guide, we explain how to prepare for the report, what it contains and the common outcomes.
Summary: Director’s conduct reports
- The director’s conduct report allows the Insolvency Service to review directors’ actions during insolvency and check for issues such as misuse of funds, trading while insolvent, or breaking the law.
- A licensed insolvency practitioner prepares and submits the confidential report to the Insolvency Service within three months of their appointment.
- The conduct report includes company background, key decisions before insolvency, directors’ roles, causes of failure and any signs of misconduct.
- If the report shows no concerns, the case closes quickly. If there is evidence of misconduct, the Insolvency Service can investigate further. If it proves misconduct, it can disqualify directors for up to 15 years.
- Directors can prepare by keeping accurate financial records and seeking early advice from a licensed insolvency practitioner.
What is the purpose of a director’s conduct report?
When a company becomes insolvent, it often results in financial losses for its creditors. Every director involved in a liquidation or administration process faces this conduct review, as it is a legal requirement under the Company Directors Disqualification Act 1986.
This is for any individual who was a director at the date of, or in the three years leading up to the start of the insolvent company’s liquidation, as per the Small Business, Enterprise and Employment Act 2015.
As part of its review process, the Insolvency Service reviews company directors’ actions through a conduct report to check whether they may have:
- Misused company funds or assets
- Broken the law
- Ignored the warning signs of insolvency
Read more about the three ways to check when a company is insolvent.
Directors have a wide range of responsibilities under the Companies Act 2006, including a duty to stay fully informed about their company’s financial position.
When the company is insolvent, they must meet specific legal obligations. At this point, their main duty is to put creditors’ interests before their own or those of shareholders – this means avoiding any actions that could increase creditor losses or make their position worse.
If a director acts wrongfully or unlawfully, or their conduct contributes to the company’s collapse, the director’s report will include the details.
Contents of a director’s conduct report
The report usually covers:
- Background information about the company
- Details of company directors and their responsibilities
- Timeline of trading and major decisions pre-insolvency
- Causes of the company’s insolvency
- Any evidence of misconduct or poor decisions
The licensed insolvency practitioner managing the liquidation or administration submits the report to the government’s Director Conduct Reporting Service.
The report is confidential and not available to the public. The insolvency practitioner must submit it to the Insolvency Service within three months of their appointment.
Examples of director misconduct
In the report, the Insolvency Service looks for signs of unfit conduct or misfeasance such as:
- Knowingly trading while insolvent
- Accepting new debt while insolvent
- Making a transaction at an undervalue
- Misusing any funds from Bounce Back Loans
- Missing any HMRC liabilities or compliance requirements
- Failing to keep or submit proper accounting records
- Paying certain creditors before others – preference payments
- Withdrawing disproportionate directors loans or dividends
Learn more about illegal dividends and insolvency.
Outcomes and implications from director’s conduct reports
In most cases, there are no red flags and the report is closed within a few months. If there is no further action to take, directors can move on and begin new business ventures if they wish.
However, if there is evidence of director misconduct, the Insolvency Service may launch a further investigation.
If the Insolvency Service proves misconduct, it can disqualify directors from managing or starting a new company for up to 15 years.
If there are signs of clear wrongdoing, it can also aim to recover company funds from directors themselves – read more about personal liability for company debts in insolvency. Proving criminal activity could lead to a prison sentence.
How to prepare for a director’s conduct report
Always act quickly if you see any warning signs that your company is heading towards insolvency, or is already insolvent.
Seek advice from an experienced insolvency practitioner without delay and be transparent about the current situation.
The insolvency practitioner can help you to quickly identify any issues, gather supporting documentation, take corrective measures and manage communication with creditors.
Keep financial records up to date and make sure they are accurate. Avoid making any preferential payments to creditors and do not take any dividends once the company cannot pay its debts on time.
Further information
If you found this article useful, in other guides we address a wide range of common queries including:
- Putting Personal Money Into A Limited Company
- Is There A Penalty For Not Issuing Payslips?
- If a Company Goes Into Administration, Do I Have to Pay Them?
We can help if you’re preparing for a company liquidation or company administration and have concerns about the director’s conduct report process.
Our licensed insolvency practitioners can provide more detail about what the conduct report involves and guide you through your responsibilities. To find out more, please contact us.
