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JGM
JGM, Solicitor
Category: Law
Satisfied Customers: 11154
Experience:  30 years as a practising solicitor.
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Does an insolvent company have the duty to disclose this information

Resolved Question:

Does an insolvent company have the duty to disclose this information to business partners?
Submitted: 2 years ago.
Category: Law
Expert:  JGM replied 2 years ago.
Thank you for your question.
-Could you explain your situation a little more?
Customer: replied 2 years ago.

I entered into an agreement with a company without knowing that the company was insolvent (we did find this out through company check.co.uk). I just wanted to understand whether the company would have had a legal obligation to tell me that it was trading insolvent.

Expert:  JGM replied 2 years ago.
Yes it would as it should not have been trading whilst insolvent.
The directors could become personally liable or even disqualified as directors where a subsequent liquidator finds that there had been insolvent trading.
Customer: replied 2 years ago.

The directors of the company have given an undertaking to financially support the company for at least 12 months from the date of the signature on the Balance Sheet, does this make any difference in regard to disclosing the information?

Expert:  JGM replied 2 years ago.
Whether they should have disclosed the information and whether they should have been trading at all depends on whether the company's financial position was such that the company would be trading wrongfully. See section 214 of the Insolvency Act 1986 which you can get online.
If the directors reasonably believed that the company was about to get better or that they were able to financially support the company, then they would not be doing anything wrong. The minute they knew that the company was not solvent it was their duty to seek advice from an insolvency practitioner.
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