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Last reviewed: June 2026 · For use in England & Wales · eLitigant is a Community Interest Company (No. 16566612), not a law firm and does not give legal advice.
In short
When a UK company is in financial distress, the director’s duty under s172 Companies Act 2006 shifts towards creditors once the company is insolvent or bordering on insolvency, or an insolvent liquidation or administration is probable (BTI v Sequana). Protect yourself with contemporaneous board minutes, written professional advice, no dividends or preferential payments, an early HMRC Time to Pay approach, and a licensed Insolvency Practitioner engaged early. These records are your strongest defence against a wrongful trading claim under s214 Insolvency Act 1986.
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Tell Chris the company’s facts — upload the management accounts, recent board minutes, the creditor schedule and any HMRC correspondence — and he drafts the full document set the twelve tips produce.Before you pay anyone — do as much yourself as you can
Insolvency Practitioners are regulated — but the “advisers”, lead-generators and middlemen around them often are not. Be wary of upfront fees before any work is done, pressure to liquidate quickly, unsolicited calls or texts after you search online, and anyone who isn’t a named, regulated IP. Many early steps — talking to creditors, the moratorium, the paperwork — you can handle yourself with Chris.
When you genuinely need a practitioner, consider a local, independent, qualified Insolvency Practitioner. You are more likely to get a personal service, a named contact and clear, fair fees — rather than being one case among thousands.
Always check they are regulated, on the official register:
• England & Wales — the Insolvency Service’s register of authorised insolvency practitioners (gov.uk)
• Scotland — Accountant in Bankruptcy (AiB)
• Or check membership of the IPA, ICAEW or ICAS.
② Check the draft you’ve written
Already drafted a board minute, resolution or CVA proposal? Upload it and Chris reviews it against the relevant statute before it goes to your IP.③ You’ve been served — respond
Received a winding-up petition, a CDDA disqualification letter or HMRC demand? Run what you received past Chris to understand it and prepare a measured, statute-referenced response.In short: When a UK company slides into financial distress, the director’s duty under section 172 of the Companies Act 2006 shifts in favour of creditors, and the contemporaneous documents a director keeps — board minutes recording creditor-interest considerations, dividend and loan resolutions, the HMRC Time to Pay application, the CVA proposal and the wrongful-trading defence file under section 214 of the Insolvency Act 1986 — become the strongest defence in any later investigation. eLitigant’s Chris drafts that full document set from your own company’s facts, or checks a draft you have written — professional and statute-referenced for review by your licensed insolvency practitioner and solicitor.
The patterns that trip up UK company directors when the business slides into financial distress are remarkably consistent. The same dozen mistakes appear in disqualification investigations, wrongful trading claims and failed Company Voluntary Arrangements year after year. The same dozen disciplines distinguish the directors who emerge with their reputation intact from those who do not.
This guide distils twelve practical tips. The underlying ideas are drawn from the published work of UK insolvency practitioners — together with public regulatory guidance from R3, ICAEW and the Insolvency Service. Where ideas come from a specific source, that source is named in line. Each tip is anchored in current UK statute.
Where this fits. This piece sits alongside four longer guides on this site: the director’s pre-insolvency step-by-step, the CVA self-help drafting guide, the DIY CVA & insolvency forms toolkit, and the phoenix strategy & Part A1 moratorium guide. The twelve tips below are the spine; the longer guides are the detail.
1. Keep contemporaneous board minutes that record creditor-interest considerations
Once the directors know, or ought to know, that the company is insolvent or bordering on insolvency, or that an insolvent liquidation or administration is probable, the director’s duty under section 172 of the Companies Act 2006 shifts in favour of creditors (the rule confirmed by the Supreme Court in BTI 2014 LLC v Sequana SA [2022] UKSC 25). Board minutes that record what options were considered, why a particular path was chosen, and how creditor interests were weighed are the strongest defence against a later wrongful trading claim under section 214 of the Insolvency Act 1986. Reconstructed minutes after the fact are weak; weekly contemporaneous minutes are strong.
2. Get every piece of professional advice in writing — and minute exactly why you departed from it
“The accountant said it was fine” is not a defence to a CDDA disqualification application. Written advice can be relied on; verbal advice generally cannot. If a director receives written advice and chooses not to follow it, the reason should be minuted at the time. Statutory anchor: CDDA 1986 section 6 and Schedule 1 (factors of unfit conduct); IA 1986 section 214(4) reasonable-diligent-director test.
3. Stop paying dividends the moment distributable reserves become doubtful
Experienced insolvency practitioners describe dividend payment from a stretched company as the most common mistake they see distressed-director clients make. Unlawful dividends become repayable personally on insolvency. Switch director remuneration to PAYE salary as soon as distributable reserves are not clearly positive. Statutory anchor: Companies Act 2006 sections 830, 836 and 847; IA 1986 section 212 misfeasance.
4. If the director’s loan account goes overdrawn above £10,000, get a shareholder resolution today
The Companies Act allows loans to directors below £10,000 without member approval; above that threshold, member approval is required. Without the resolution, the IP will demand repayment in liquidation and HMRC will assess the section 455 corporation tax charge. Statutory anchor: Companies Act 2006 sections 197 to 214; Corporation Tax Act 2010 section 455.
5. Treat HMRC as a negotiating partner — open Time to Pay before you miss a deadline
HMRC is the largest unsecured (or, since the Finance Act 2020, the secondary preferential) creditor in the majority of insolvent companies. Experienced insolvency practitioners describe a CVA as “the ultimate Time to Pay agreement” — an apt mental model. Open the Time to Pay conversation before the next due date is missed; the application is made directly by the director through the Business Payment Support Service. Statutory anchor: Finance Act 2020 (HMRC secondary preferential status for VAT, PAYE, NIC).
6. Watch for the four early warning signs
Public IP guidance consistently lists four warning signs of impending insolvency:
- The business is being run for cash flow rather than for profitability.
- The company cannot pay its debts as they fall due (the cash-flow insolvency test).
- The balance sheet shows liabilities exceeding assets (the balance-sheet insolvency test).
- There is no credible recovery plan in place.
Two of these four are the statutory tests for insolvency under section 123 of the Insolvency Act 1986. When two or more are present, the creditor-duty shift has happened; act accordingly.
7. Do not make preferential payments to friendly creditors, family or yourself in the run-up to a formal procedure
Any payment that puts an associated creditor in a better position than they would be in liquidation is reversible by the IP, with a two-year look-back for connected parties. Statutory anchor: IA 1986 sections 238 (transactions at undervalue) and 239 (preferences); section 240 relevant time provisions.
8. In a CVA, secure HMRC’s view in writing before the decision date
HMRC routinely swings the 75% creditor vote required for CVA approval, particularly in SME cases. HMRC’s specialist Voluntary Arrangement Service publishes the factors it considers; engaging proactively before the decision date is materially more productive than discovering HMRC’s objection at the meeting itself. Statutory anchor: Insolvency Rules 2016 Part 2; IA 1986 Schedule A1. The full proposal-drafting framework sits in the CVA self-help guide.
9. Use the Part A1 moratorium for breathing space — directors stay in possession
The Corporate Insolvency and Governance Act 2020 introduced a free-standing 20-business-day moratorium under Part A1 of the Insolvency Act 1986. Directors retain management control; a monitor (licensed IP) confirms rescue is likely. Under-used by SMEs. A quiet way to fend off a winding-up petition while restructuring conversations conclude. The mechanics are covered in the moratorium & phoenix guide.
10. The buck stops with the director — do not blame the accountants
The Insolvency Service investigates the conduct of the director, not the adviser. Section 174 of the Companies Act 2006 imposes a duty of care, skill and diligence — to the standard of both the reasonable diligent person and the actual director’s specific knowledge and experience. Statutory anchor: CDDA 1986 section 6 and Schedule 1; Companies Act 2006 section 174.
11. Engage a licensed IP early enough that you still have options
Experienced insolvency practitioners publish the figure that around three-quarters of clients who engage them in time avoid a formal insolvency process altogether. The corollary: directors who wait until the winding-up petition is presented have already lost the rescue, CVA, administration and pre-pack options. Engaging an IP early — armed with the documents covered in this site’s longer guides — preserves choice. Statutory anchor: IA 1986 Schedule B1 (administration); section 84 (CVL).
12. Keep the books — physically — and never surrender originals unconditionally
Books and records are the director’s first and last line of defence in any subsequent investigation. Originals (or certified copies) should remain accessible to the director, not archived beyond reach. Statutory anchor: Companies Act 2006 section 386 (duty to keep accounting records); CDDA 1986 Schedule 1 paragraph 4 (failure to keep proper records as a factor in unfit conduct).
And when a fresh venture follows, set it up correctly from the outset — our business incorporation and company formation guide (2026) covers the structure, filings and early housekeeping that keep the next company clean.
How Chris turns each tip into a document
Each of the twelve tips above produces a specific document or filing. Chris drafts the lot: the creditor-duty board minute (post-Sequana), the dividend cessation resolution, the shareholder loan resolution under CA 2006 section 197, the HMRC Time to Pay application letter, the Part A1 moratorium filing pack, the CVA proposal package, the records-keeping register, the wrongful-trading defence file under IA 1986 section 214.
Tell Chris the company’s facts. Upload the management accounts, the last 90 days of board minutes, the creditor schedule and any HMRC correspondence. Chris produces the full document set, statute-referenced, ready for review by the licensed IP and the company’s solicitor. We work under an aggregated model that gathers data for your cases. Your data — your chat — is archived and never viewed by another human.
Draft your director’s defence file
Tell Chris the company’s facts and upload the documents. He drafts every document the twelve tips above produce — board minutes, resolutions, HMRC letters, CVA proposal package — referenced to UK statute and ready for IP review.
Companion guides
- Director’s pre-insolvency step-by-step guide
- CVA self-help drafting guide
- DIY CVA & insolvency forms toolkit
- Phoenix strategy & Part A1 moratorium
- Director disqualification defence (CDDA 1986)
- All insolvency & debt forms — full hub
The twelve tips draw on established UK insolvency practice and public guidance from R3, ICAEW and Insolvency Service guidance. The expression of each tip is original; statutory anchors are current as at the date of writing.
This is procedural literacy, not legal advice. Insolvency carries personal director liability under sections 213 and 214 of the Insolvency Act 1986; complex situations should be reviewed by a qualified insolvency practitioner or solicitor before formal steps are taken.
Frequently asked questions
When does a director’s duty shift towards creditors?
Once the directors know, or ought to know, that the company is insolvent or bordering on insolvency, or that an insolvent liquidation or administration is probable, the director’s duty under section 172 of the Companies Act 2006 shifts in favour of creditors — the rule confirmed by the Supreme Court in BTI 2014 LLC v Sequana SA [2022] UKSC 25. When two or more of the early warning signs are present, that shift has happened and the director should act accordingly.What is the strongest defence against a wrongful trading claim?
Board minutes that record what options were considered, why a particular path was chosen, and how creditor interests were weighed are the strongest defence against a later wrongful trading claim under section 214 of the Insolvency Act 1986. Weekly contemporaneous minutes are strong; minutes reconstructed after the fact are weak.Why should professional advice be in writing?
“The accountant said it was fine” is not a defence to a CDDA disqualification application. Written advice can generally be relied on; verbal advice generally cannot. If a director receives written advice and chooses not to follow it, the reason should be minuted at the time.What is a CVA and how does HMRC affect it?
Experienced insolvency practitioners describe a CVA as “the ultimate Time to Pay agreement”. HMRC routinely swings the 75% creditor vote required for CVA approval, particularly in SME cases, so securing HMRC’s view in writing before the decision date — through its specialist Voluntary Arrangement Service — is materially more productive than discovering an objection at the meeting itself.What is the Part A1 moratorium?
The Corporate Insolvency and Governance Act 2020 introduced a free-standing moratorium under Part A1 of the Insolvency Act 1986. Directors retain management control while a monitor (a licensed IP) confirms rescue is likely — a quiet way to gain breathing space and fend off a winding-up petition while restructuring conversations conclude. Check the current period that applies to your situation.What documents does Chris produce from these tips?
Each tip produces a specific document or filing: the creditor-duty board minute (post-Sequana), the dividend cessation resolution, the shareholder loan resolution, the HMRC Time to Pay application letter, the Part A1 moratorium filing pack, the CVA proposal package, the records-keeping register and the wrongful-trading defence file under section 214. Chris drafts the lot, statute-referenced and ready for review by your licensed IP and solicitor.Build your director’s defence file today
Tell Chris the company’s facts and upload the documents. He drafts every document the twelve tips produce — referenced to UK statute, ready for IP review.
Draft my director’s defence file →One matter · one case folder · a full day of drafting · 7-day guarantee on the standard of the drafts · you remain the litigant in person
See also: DIY company insolvency & rescue — every option compared, and how to cut the insolvency-practitioner fees.
Contains public sector information licensed under the Open Government Licence v3.0.
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