Can I resign as a director during company closure?

When closing a limited company, you may decide that resigning is easier and quicker than waiting for the process to play out. Legally speaking, there’s nothing to stop you from resigning as a director during company closure, but it may not be the wisest move. 

Even if you resign, you have obligations to fulfil, and you can still be held liable for your decisions and actions as a director. Resigning can even increase the risk of adverse legal and financial consequences, particularly if you do so in an attempt to avoid your obligations. With that in mind, we discuss the potential consequences of resigning as a director during company closure, and the rules, responsibilities and implications you should be aware of.  

The impact of resigning as a director varies depending on the company closure procedure.

Resigning during Strike Off 

If you are the sole director of a company, you cannot resign before applying for Strike Off as there must be an active director when the Registrar of Companies receives your application. If there are other directors, you can legally resign during the Strike Off procedure, but you will still be liable for your actions and decisions as an active director. 

You should only use Strike Off to close a company that can pay all its debts. If you try to Strike Off an insolvent company and resign, creditors can object to your Strike Off application or apply to restore the company to the register. You can then be made personally liable to repay the company’s debts, and creditors can call in personal guarantees you have given for the business’s borrowing.   

Resigning during solvent liquidation 

If the company can afford to pay all its debts (it’s solvent), the liquidation process is less demanding of company directors. You are free to resign at any time, but you must still cooperate with the liquidator and provide documents and records as requested. 

The liquidator does not investigate the conduct of the directors as part of a solvent liquidation. However, you can still be held liable for any wrongdoing or misconduct and pursued for personal guarantees and any other debts you owe to the company. 

Resigning during insolvent liquidation 

It’s not illegal for the director of a company that cannot pay its debts to resign during the insolvent liquidation procedure, but it doesn’t absolve you of your obligations. Even after resigning, you must still attend an interview with a liquidator and hand over relevant records and documents. 

As part of an insolvent liquidation, the liquidator will investigate the conduct of all directors who were in office in the three years before the liquidation, including directors who have resigned. They will also review the company’s bank accounts for unusual transactions. 

If the liquidator uncovers evidence of misconduct or negligence, they can pursue you personally for company debts. That’s likely to be the case if your actions resulted in the company becoming insolvent. Other penalties include fines and director disqualifications. The liquidator can also pursue you to repay overdrawn director’s loan accounts for the benefit of the company’s creditors, and personal guarantees can be called in. 

If you want to resign as a director during company closure, think about how your resignation will be perceived. If it’s seen as an attempt to evade your legal duties, it can damage your professional reputation and potentially increase the risk of financial and legal repercussions.

However, if you have nothing to hide and simply want to move on from the company, these are the steps to take:

• Consult with an Insolvency Practitioner for advice tailored to your circumstances.
• Clarify your liabilities before you resign, including overdrawn director’s loan accounts, and consider negotiating the status of personal guarantees as part of your exit strategy.  
• Consider the potential impact on your professional reputation, especially if the company is struggling.
• Submit a written resignation notice to the company and the liquidator and notify all relevant parties, including fellow directors, shareholders and company creditors. 
• Make sure the company notifies Companies House of your resignation within 14 days to ensure it’s legally binding.
• Cooperate with the liquidator by handing over documents relating to the company’s finances and operations and attending interviews as requested.

Resignation is a legal right for a company director, but it’s not a shield from your responsibilities and liabilities. The best way to protect yourself from the adverse effects of resigning during company closure is to seek advice from an experienced Insolvency Practitioner. 

At Company Closure, we have supported over 25,000 directors and provide free initial advice to protect your position and help you make informed decisions. Get in touch for a free consultation or arrange a meeting at your nearest office.