Originally published by HLB Ireland. By Peter Dawson, HLB Ireland.

For directors, the point at which a company becomes unable to pay its debts as they fall due is rarely obvious in the moment, and the decisions made in the weeks around that point can follow a director long after the liquidator is appointed. Directors who get the process wrong can find themselves exposed to allegations of trading while insolvent, personal liability for company debts, or a difficult conversation with the Corporate Enforcement Authority further down the line.

Most of the mistakes directors make during liquidation are more to do with unfamiliarity than bad faith. Preparation, proper advice and a clear understanding of what the creditors’ meeting requires make the difference between a process that is difficult but controlled and one that can become potentially damaging.

Drawing on direct experience advising directors through this process, we have set out ten of the most common and most avoidable mistakes below.

1. Liquidating too late

The law requires that a company enters liquidation when it is unable to pay its debts as they fall due. This can be a difficult moment in time to recognise. Liquidating after this moment exposes the directors to the possibility of the offence of trading while insolvent and personal liability for the company’s debts in certain circumstances.

2. Inadequate preparation for the creditors’ meeting

The documentation, notice period and time, date and venue of the creditors’ meeting are set out in law. Failing to adhere to these can cause difficulties later in the process. The solution is to engage, in good time, an experienced professional.

3. Poorly prepared Statement of Affairs and Chairperson’s Statement

These are the two key documents required for the creditors’ meeting. A Statement of Affairs in the correct format should, to the very best of the directors’ ability, include all creditors with the proper amounts due. The chairperson’s statement must include basic information about the company and, more importantly, the directors’ side of the story — how the company got into difficulty, how the directors responded, and how the company came to be liquidated.

4. Not controlling the creditors’ meeting

The creditors’ meeting is the emotional high point. Directors ought to be advised by a solicitor or other experienced insolvency professional — one who is not only well versed in the law but also has the presence to steer the meeting through the agenda. Directors without an advisor can lose control of the meeting and represent their own position to their disadvantage.

5. Dealing with questions inappropriately

A good professional will advise the directors to answer all questions honestly and as succinctly as possible. The meeting is being minuted, so questions posed and answers given are recorded. There is no expectation that the director will have detailed answers to every question. Speculation has no part to play when replying.

The remaining pitfalls

The full article covers the remaining points in detail — properly addressing employees who attend, handling professionals who seek to take control of the meeting, giving Revenue officials the respect their office demands, engaging fairly with trade creditors, and continuing to engage meaningfully with the liquidator after their appointment.

Read the complete guide on hlb.ie, or talk to HLB Ireland’s Restructuring & Insolvency team at info@hlb.ie.