www.iva.co.uk

I may be offered a role as managing director of a company that is currently in IVA. I am concerned as to how I ensure that I am not putting myself in a position where I will be exposed to financial or legal liability if the company can not start to turn things around. Where can I go for information on what my exposure may be and how I can reduce it?

A Company cannot be in an IVA, it can be in a CVA (Company Voluntary Arrangement).

You certainly should have concerns, as if the Company fails the CVA it could cause the Company to be placed into Liquidation and you would be a director of a Company in Liquidation.

Please go to the following DTI website regarding directors of insolvent companies. http://www.insolvency.gov.uk/
directordisqualificationandrestrictions/
whatisdisqualification.htm

Hope this helps

Hi bcj,

You should be careful, however Becoming a director of a company in a CVA should not be seen as a bad thing as long as you can help to turn the company around and complete the CVA.

You should make sure the minutes of the meeting are clearly defined as to when you joined the company and that the company was already in a CVA and that you are coming on board to help guide this company through the CVA for the benefit of the companies creditors.

From this point make sure up to date minutes of the meetings are always kept upto date as a referece should something go wrong.

From here you will be under the normal rules and regulations for a Company Director, the thing to be wary of in this position is trading whilst insolvent.

It is very easy to fall into this trap, I myself put a company into a CVA that I purchased, it was in a dire state when I purchased it and saw a CVA as the most viable option.

Four years later the comapny was strugling again and I should have pulled the plug, but I felt I couldn't because I had come so far from the starting point and only had a year to run on the CVA, I felt I would let down those creditors whom had supported the CVA in the first place so I tried to trade through it.

However the inevitable happened and I only ended up causing greater problems to the credtiors when the company was put into compulsory liquidation.

I ended up accepting a directors disqualification undertaking banning me from being a Director for Five Years, on top of this they waited for two years after the liquidation to come to me with this so in reality it was a seven year ban.

So be carefull not to find yourself in this position, but don't let it put you off completely just go in with your eyes open.

The key to this is to ensure that you are appropriately empowered to receive appropriate management information as to the company's ongoing financial performance, thus minimising your exposure.

Depending upon the role you are being recruited to do, insist on seeing monthly KPIs and managment accounts, and watch that the company is not starting to build up credit lines again. Most successful CVA's result from a one-off unexpected occurance rather than general poor performance, so take time to study the history of the company and have a meeting with the IP acting as Supervisor to see how the progress of the IVA is faring.

Personally i do not think this is a good thing as one requires a lot of finacial acumen to deal with the problems.

It might be better for you to look at other options which could take the company out of a CVA or administration and generally most IP's are experienced at breaking up companies. Infact any good IP would prefer this anyway.

This is a complex area and one would be wise to talk to an accountant or commercially minded solicitor.
In any case good luck.

Many thanks for all the responses. If I was an 'acting MD' under temporary contract would this dilute my responsibility or is the fact that I am a Director in name mean I am subject to the normal Director rules?

Hi bcj,

All Directors of the comapny have a responsibility to the running of the comapny and the creditors of that company whether your the Managing Director or not, so this would not dilute your responsibility in anyway.

This also relates to shadow directorship, so even if you are not formally appointed as a director, but were seen to be running the company you would still be answerable if anything were to happen.

I hope this helps,

Kind Regards,

Brett

If you are involved in the upper-level decision making you will be considered as a director whether or not you are formally appointed.

Your biggest single risk is that of wrongful trading, if the company subsequently enters into insolvent liquidation. The company is already insolvent and if things go from bad to worse there could be an issue if you have presided over a deterioration in the position. To protect yourself you need to demonstrate that you have taken "every step" to minimise the loss to creditors. That will take into account 2 tests, subjective and objective i.e the knowledge and expertise you actually possess and that which you are deemed to possess simply by virtue of the office you hold. Also bear in mind that your conduct now may, some months later, be scrutinised with someone having a first class degree in hindsight. Previous pointers particularly documenting everything you do, are helpful.

Whether you are at risk in any way depends upon the specific circumstances of the case, so I would have a sit-down meeting with either an IP or an insolvency lawyer. Has the IP in charge of the CVA given any indication of problems?

Ian