A New Pre-Incorporation Roadmap to Support the Reduction of Insolvency Numbers?

There is a plethora of sources in England and Wales governing corporate insolvencies for directors of limited companies in financial distress or approaching or entering the insolvency process, together presenting to the company director a legislative framework lacking in coherence. There is also a lack of consistency in common law judgments, resulting in a lack of certainty for a director facing potential ruin if held personally liable.

None of these factors support the UK government’s claimed rescue culture, which statistics show is failing. This is of increasing importance: the Covid-19 pandemic has already resulted in a wealth of companies in financial distress in a wide range of sectors.

Access to limited liability is not a right, it is a benefit, one that can adversely impact on creditors when companies are struggling; it is only right that the obligations that come with enjoying that access are clearly defined, governed and managed. The authors present an alternative pre-incorporation roadmap for legislators and directors, aimed both at supporting the government’s rescue culture and leaving entrepreneurs free to leverage their knowledge to maximise shareholder returns, rather than worrying about safeguarding their own positions in relation to directorial duties and obligations during periods of financial distress.