What should directors do when their company may be insolvent?

Directors should:

ensure that up to date and accurate management information is available and monitor the company’s finances and cash flow on a regular, at least monthly, basis and more regularly if the financial situation worsens;
prepare cash flow statements so that they can anticipate the times when the company may not be able to pay creditors and plan for them e.g. through communication and negotiation with creditors;
if insolvency cannot be avoided, consider whether the company can continue to trade. This should only be considered an option if the board determines that insolvent liquidation is not inevitable and creditors will not be prejudiced e.g. a continued period of trading will improve the company’s fortunes or a cost cutting exercise and/or turnaround strategy will return the company to solvency.  Directors should record their decision to continue to trade and the reasons for them in the form of board minutes and a review of the decision should take place regularly;
take professional advice and have that advice recorded in writing;
consider whether to continue to take a salary at the level currently awarded or at all and reduce or suspend remuneration is necessary. Directors should be aware that HMRC and the Secretary of State will take a dim view of directors who effectively “bank roll” their company with “credit” from HMRC unless an agreement has been reached, particularly in circumstances where funds that could have been used to pay HMRC have instead been used to pay the directors;
treat all creditors fairly and equally. New supplies should not be ordered unless they can be paid for nor should new contracts be entered into unless they can be performed;
avoid transferring assets of the company away from it, including intangible assets such as intellectual property, without taking advice and ensuring that full market value is paid;
consider whether to invoke an insolvency process, such as a liquidation or administration or seek a formal arrangement with creditors through a Company Voluntary Arrangement.

Resigning as a director will not absolve a director from liability.  Further non-directors may be liable as if they were a director where their behaviour, in controlling the affairs of the company and the actions of the board, is akin to that of a director such that they may be considered to be “shadow directors”.