How can directors reduce their risk during financial distress?

Directors can reduce risk by acting early, seeking professional insolvency advice, and keeping accurate financial records. They should avoid taking on new debts without a realistic repayment plan and must not favour certain creditors over others. Holding regular board meetings and documenting decisions helps demonstrate that they acted responsibly. Directors should also review personal guarantees and consider the implications of overdrawn loan accounts. By showing that they took steps to minimise losses to creditors, directors protect themselves against claims of wrongful trading or misfeasance. Engaging with creditors honestly and proactively can also reduce conflict and increase the chances of finding a viable solution. Ultimately, directors who act transparently and in good faith significantly reduce their personal exposure in insolvency situations.