The day the company crossed the line
Director liability turns on when insolvency became likely. Trustees rebuild that date from minutes and email, so write them carefully.
Director liability turns on when insolvency became likely. Trustees rebuild that date from minutes and email, so write them carefully.
When a company fails, a trustee will ask when it became insolvent and what its directors knew then. The answer can decide whether directors keep payments they received.
The date is rarely marked at the time. Trustees rebuild it from forecasts, lender correspondence, board packs and email, often years later.
Directors who see trouble coming should record their reasoning as they go. Clear minutes showing that creditor interests were weighed are the best protection available.
How trustees find the date
- Cash forecastsWhen projections stopped showing debts paid as they fell due.
- Lender lettersDefaults, waivers and reservations of rights.
- Board recordsWhat directors were told, and what they did next.
What directors should do now
Take advice early, keep minutes that explain decisions, and avoid payments to insiders once distress is visible.
If a filing is likely, understand your insurance position before the claims arrive.
Typical look-back period for fraudulent transfer claims under the Bankruptcy Code.
Board minutes written in a crisis will be read calmly, years later, by someone looking for a date.
Questions clients ask
Are directors personally liable?
Sometimes, where duties were breached. Insurance often responds, subject to its terms.
Can payments be clawed back?
Transfers made while insolvent, or to insiders, are the most exposed.
Treat this note as background only. Your own facts decide the right answer, and a short call is the way to test them.
