Worried About Your Company Becoming Insolvent?

Directors of a company on the brink of insolvency should take extra care in carrying out their duties to avoid the risk of liability for wrongful trading under the Insolvency Act 1986. 


In such circumstances it is advisable for directors to do the following:

• obtain professional advice from a solicitor and/or insolvency practitioner in relation to any major decision taken by the company and insist on such advice being documented;
  

• hold regular board meetings at which all directors should be present so that the entire board is aware of the company's financial status;

• circulate board minutes immediately after meetings as this will provide evidence of whether or not steps taken by the directors minimise the potential loss for the company's creditors for the purpose of avoiding liability for wrongful trading;

• draw up a list of all possible sources of funding for the company as this will be useful for the board in identifying the time at which the company no longer had any reasonable prospect of avoiding insolvent liquidation for the purpose of avoiding liability for wrongful trading.

• draw up a timetable for when financial milestones such as new funding levels for the company must be met. The timetable should be strictly adhered to and it should identify the time at which the company's failure to meet a milestone will mean that there is no reasonable prospect of the company avoiding insolvent liquidation.

It is also wise for director's to avoid:

• letting the company incur any new substantial liabilities until further funding has been secured, with the exception of circumstances where the board considers any such liabilities being essential and in the best interests of the Company;

• waiting for a winding up petition to alert the board to financial problems and directors should ensure that they have up to date financial information at all times, compliance with financial covenants in arrangements with lenders should also be closely monitored;

• ignoring events such as creditors putting pressure on the company, the company filing its accounts late or judgments being entered against the company as these could be evidence of insolvency which a reasonable director should have known about;

• delays in raising a problem with the rest of the board as it is important for the board to take immediate legal and financial advice as soon as a director is aware, or fears, that there is no reasonable prospect of the company avoiding insolvent liquidation;

• simply resigning to avoid the problem as directors must take every step to minimise potential loss to creditors and if they conclude that the company cannot continue to trade they must implement one of the insolvency procedures.

Making parental leave too expensive?

In April, the Equality and Human Rights Commission (EHRC) published "Working Better" a report calling for significant changes to the statutory maternity, paternity and parental rights regime. 


The report states that the UK's current parental leave policies are the worst in Europe.

The EHRC proposes that family friendly rights are improved in the following way:-

• The removal of any length of service requirement for entitlement to maternity pay or paternity rights;

• SMP to be payable for 26 weeks at 90% of salary;

• A new 52 week period of parental leave with 4 months to be taken by the mother and 4 months by the father and the remainder to be taken by either parent and this to be in addition to existing maternity and paternity leave;

• The pay for this new parental leave to be either 26 weeks pay at 90% of salary or 52 weeks at 50% of salary.

The current statutory maternity, paternity and parental leave provisions in the UK provide that:-

• Women are entitled to 1 year's maternity leave, regardless of service, which comprises 6 months' ordinary maternity leave (OML) and 6 months' additional maternity leave (AML). They are entitled to return to the same or similar job after this period, depending on how much leave is taken;

• In addition, those with 26 weeks' continuous employment prior to the fourteenth week before the expected week of childbirth (EWC) are entitled to up to 39 weeks' statutory maternity pay (SMP). SMP is payable for the first 6 weeks at 90% of salary and for the remaining 33 weeks at the prescribed rate of either £123.06 per week or 90% of salary, whichever is lower;

• Fathers (or partners) with 26 weeks' continuous employment prior to the fourteenth week before the expected week of childbirth (EWC) are entitled to 2 weeks paternity leave and statutory paternity pay (SPP) which is either £123.06 per week or 90% of salary, whichever is lower;

• Parents with a year's continuous service are entitled to take 13 weeks unpaid leave before each child's fifth birthday. These rights are supplemented by the flexible working rights for employees who care for children and have recently been extended to those employees who care for adult dependents.

The current parental policies cost the Government £2.07 billion a year and the EHRC estimates that the proposed changes to the regime would cost a further £5.26 billion a year. 


Disregarding the tax consequences, the effect on small to medium businesses of employees taking lengthy periods of leave is a further argument against extending parental leave rights, particularly in the current economic climate.