How can directors avoid accusations of misconduct during insolvency?

Directors can protect themselves from accusations of misconduct by acting transparently and responsibly once financial distress becomes apparent. This includes keeping accurate and up-to-date financial records, ceasing to incur unnecessary debts, and avoiding preferential treatment of certain creditors. Directors should hold regular board meetings, document decisions, and seek professional insolvency advice at the earliest signs of trouble. By demonstrating that they considered creditors’ interests and explored all reasonable rescue options, directors can show they acted in good faith. Failure to take such steps risks accusations of wrongful or fraudulent trading, misfeasance, or unfit conduct. These charges can result in personal liability, director disqualification, and reputational damage. The key to avoiding misconduct allegations is early action, professional guidance, and thorough record-keeping. Courts tend to be more lenient with directors who can demonstrate that they took advice and made rational efforts to minimize creditor losses.