On liquidating a company, the insolvency practitioner
appointed as liquidator must produce a report on the general conduct of the directors who have been responsible for running the business. This is called the directors disqualification report or D1 report.
The liquidator is required to report on any person who has acted as a director of the company for the past three (3) years or any person who seems to have acted in the capacity of a director although they may not be formally registered as such at Company’s House.
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Wrongful Trading
If the liquidator finds that any director has knowingly allowed the company to trade while insolvent, then they could accuse the director of wrongful trading. If upheld, this could lead to the director being struck off of the register of directors and banned from being a director for up to 15 years.
The director may also be held personally responsible for company debts incurred during the time that the director was aware that the company was trading when insolvent.
Note:
Directors cannot be accused of simply mismanaging the business. Wrongful trading relates to the specific act of knowingly trading a limited company while it is insolvent.
