Commentary from Neil Davies, Director, of Neil Davies & Partners (‘NDP’), and Richard Shepherd, Senior NDP Solicitor, on the duties of Directors and the recent increase in Winding-Up Petitions and Insolvency Claims against Directors. Neil is an advisory editor to ‘Mithani: Directors Disqualification’ – the leading work on Directors’ Disqualification law and practice.
The latest insolvency statistics for Q1 2025 show a significant rise and upwards trend in the number of Winding-Up Petitions filed in the Insolvency and Companies Court, particularly in those sectors experiencing the worst financial distress. With Winding-Up Petitions increasing – in particular, those initiated by HM Revenue & Customs (‘HMRC’) – Directors must be fully aware of their legal responsibilities and the financial implications of insolvency claims against them personally from (amongst others) the Liquidator, HMRC (see below) and the Insolvency Service (‘IS’) that may flow from a liquidation or administration of their company.
At NDP, we specialise in prosecuting and defending Winding-Up Petitions and dealing with Insolvency Claims, providing expert legal representation to Directors facing financial scrutiny when their insolvent companies are liquidated or placed into Administration. There is often much to be done by and for Directors in the period before the making of a compulsory Winding-Up Order – Directors should obtain legal advice before the Winding-Up Order is made, to explore options that include:
- Avoiding the making of the Winding-Up Order where appropriate by, for example, reaching a Time to Pay (‘TTP’) arrangement with the Petitioning Creditor.
- Entering into a restructuring process, such as a formal restructuring plan, the Administration of the company or a Company Voluntary Arrangement (‘CVA’).
- Pursuing instead a voluntary liquidation process (and thus retaining a modicum of control over the winding-up process) with a Liquidator nominated by the Directors/Shareholders.
As Insolvency Practitioners intensify their investigations into the affairs of companies in liquidation, early intervention and strategic legal guidance are essential tools in the Director’s toolkit to help in defending Directors against threatened litigation, personal financial liability, insolvency claims and reputational damage.
HMRC’s more aggressive approach. What is the growing impact of Winding-Up Petitions and Insolvency Claims on Directors?
The Insolvency Courts have seen a substantial rise in Insolvency Claims in recent months, with Q1 2025 recording over 2,000 Winding-Up Petitions, 1,069 of which were presented by HMRC. This marks a significant increase from previous quarters, demonstrating a more aggressive approach from HMRC in recovering unpaid VAT, PAYE, Corporation Tax and National Insurance Contributions (‘NIC’).
The increase in firms finding themselves in financial difficulty is linked to many factors, including rising operating costs over the last few years – especially higher energy prices. The recent increase in Employers’ National Insurance Contributions and the minimum wage, as well as the current global tariff war, will likely see this trend continuing.
Directors must recognise that unpaid tax liabilities and financial mismanagement can also lead to personal claims against them to include claims in Misfeasance, Misfeasant Trading, Wrongful Trading, Preference and Undervalue Transactions – all of which regularly form the basis of Insolvency Claims pursued by Liquidators.
Such Liquidator investigations and claims are often conducted in parallel with an investigation into directorial conduct by the IS, which could lead to Director Disqualification. We are uniquely placed to assist the Director here. Take a look at some of our Director Disqualification testimonials.
What are Personal Liability Notices (‘PLNs’) and how might they affect Directors?
We are seeing a recent increase in PLN’s served on Directors by HMRC, which notices are served (in broad terms) where the Director has suffered two insolvent liquidations in a five-year period and where a new business in which the Director is involved, carries on a similar trade. This topic is outside of the scope of this article, but the potential for such personal liability under PLN’s is a very real factor to be taken into account by the Director.
Why must Directors act quickly when faced with an Insolvency Claim?
Insolvency Claims arise when Insolvency Practitioners investigate a company’s financial transactions, scrutinising decisions made and directorial conduct prior to liquidation or administration. Delays in addressing financial issues can expose Directors to severe consequences, including personal liability for mismanaged company funds and/or wrongdoing with company assets, to include claims in respect of monies owed by Directors on Director Loan Accounts (‘DLA’).
Here at NDP, we offer strategic defence advice against Insolvency Claims, ensuring Directors receive the legal support necessary to respond most effectively to Liquidator investigations. Take a look at some of our case studies for successful Insolvency Claims work.
How do Insolvency Practitioners influence Insolvency Claims against Directors?
Insolvency Practitioners play a central role in Insolvency Claims by examining the company’s financial records, reviewing transactions and taking action against Directors where Director misconduct (whether intended or not) is suspected. Their investigative powers allow them to:
- Reverse or be compensated for transactions deemed to be Preferences or Transactions at Undervalue (‘TAAU’).
- Assess whether Directors have acted in creditors’ best interests and if not, seek financial redress from the Director (perhaps by claims for fraudulent trading, wrongful trading or misfeasant trading).
Early positive engagement by the Director with the Liquidator can mitigate or avoid future issues.
How can we defend directors against Insolvency Claims and Insolvency Service Investigations?
A Director facing Insolvency Claims requires early expert legal representation to protect their interests. At NDP, our approach includes:
- Advising Directors and working with the prospective Liquidator in the lead up to the formal insolvency of the company. We offer a service to Directors to advise them of pitfalls (and remedies) prior to the formal instruction of the Liquidator. Prevention is often better than cure.
- Anticipating the Insolvency Practitioner’s strategy to prepare a solid defence.
- Negotiating settlements to mitigate liability and financial exposure.
Through early intervention and expert legal advice, we can help Directors successfully navigate Insolvency Claims, avoiding unnecessary financial and legal consequences.
Why do Insolvency Claims matter in Director litigation cases?
Seeking legal advice as soon as financial difficulties arise in the company can make a crucial difference in best managing and defending Insolvency Claims.
How does Directors’ & Officers’ Insurance (‘D&O Insurance’) affect Insolvency Claims?
With insolvency numbers on the rise, Insurers are reassessing risk exposure related to Insolvency Claims. Directors should review their D&O Insurance policies to ensure adequate coverage for insolvency-related investigations. However, it remains to be seen whether the increase in claims will see a hike in premiums by the Insurance providers.
Here at NDP, we advise Directors on policy coverage issues and wider insurance implications, ensuring they are prepared for any Insolvency Claims proceedings.
What recent outcomes show NDP’s success in defending Directors facing Insolvency Claims?
Here are some examples of our success in defending Directors facing Insolvency Claims:
We were instructed by a Director facing an Insolvency Claim from a Liquidator of over £100,000, potential Director Disqualification proceedings from the IS and a possible Compensation Order from the IS for recovery of a Bounce Back Loan (‘BBL’) of £50,000, after he placed his restaurant company into Creditors Voluntary Liquidation. This testimonial details the serious issues the Director was facing and how we were able negotiate the Liquidator Claim down to a sensible level, whilst convincing the IS to abandon its Director Disqualification Investigation (yes, the IS does abandon Director Disqualification Investigations when persuaded that it is not in the public interest to carry on).
Used properly, Mediation is a fantastic tool that saves money, saves time, gives certainty, avoids the angst and risks inherent in Litigation.
The insolvency litigation case we describe here, which centred around a £2.9 million Insolvency Claim, demonstrates that when conducted properly, with the right Mediator and the right attitude on all sides, Mediation can produce great outcomes, in this case a reduction of over £2.5m for a client on the original claim.
What to do if facing an Insolvency Claim
Getting the team at NDP involved for help and advice at an early stage when facing an Insolvency Claim is always the best option.
If you require legal advice on Insolvency Claims, visit our Insolvency Claims page to learn more about our specialist services, and then contact us for a free of charge, no obligation initial chat.
