When a company enters liquidation in the UK, one of the most important parts of the process happens behind the scenes: the preparation and submission of the director conduct report. This report plays a crucial role in ensuring transparency, accountability and proper oversight during a liquidation. Yet for many directors, the term can feel worrying or even intimidating, especially if it is their first time facing financial difficulty with a company.
Understanding what a director conduct report is, why it is required and what the Insolvency Service does with it can help remove the anxiety surrounding the process. In reality, most directors have nothing to fear as long as they have acted reasonably, responsibly and in good faith throughout the life of the business.
Understanding the purpose of the director conduct report
The director conduct report is a statutory requirement under the Company Directors Disqualification Act 1986. Every time a company enters Creditors’ Voluntary Liquidation (CVL) or Compulsory Liquidation, the appointed Insolvency Practitioner must investigate the actions and behaviour of the directors in the period leading up to insolvency. They then file a confidential report with the Insolvency Service, usually within three months of their appointment.
The purpose of the report is not to penalise directors unnecessarily. Instead, it exists to protect creditors and ensure the UK business environment remains fair and trustworthy. It helps identify instances where directors may have:
- Acted improperly
- Failed to meet their statutory duties
- Wrongfully traded when insolvent
- Put creditors at a disadvantage
For directors who have acted appropriately, the report becomes a straightforward administrative step. However, for those who have behaved irresponsibly or dishonestly, the report may lead to further investigation or potential action.
What the Insolvency Practitioner looks at
The Insolvency Practitioner will assess the company’s financial affairs and the decisions made by the directors in the period prior to insolvency. Areas typically reviewed include:
1. Financial management
The Insolvency Practitioner will review the company’s accounts, banking records, cashflow, debts and creditor position. They will assess whether the directors took reasonable steps to manage the company’s finances and acted promptly once the business became insolvent.
2. Transactions involving company assets
The report will cover any significant transactions before liquidation, particularly those involving:
- Transfers of assets
- Payments to directors or connected parties
- Preferential payments to certain creditors
- Undervalued transactions
The Insolvency Practitioner will check whether these were legitimate or whether they potentially harmed creditors.
3. Director decision-making
This includes strategic decisions, financial commitments, responses to creditor pressure and behaviours during financial difficulties. The Insolvency Practitioner will consider whether directors acted reasonably and sought appropriate professional advice where needed.
4. Compliance with statutory obligations
The report will review whether the company complied with filing obligations, tax payments and employment responsibilities, including PAYE, VAT and staff wages.
Examples of conduct that may raise concerns
While many businesses fail for entirely legitimate reasons such as market changes, economic pressures or the loss of key customers, some behaviours can raise concerns for the Insolvency Service. Examples include:
Trading while insolvent
Continuing to incur credit when the company could not pay its debts.
Taking deposits or pre-payments knowing they could not be fulfilled
This is viewed as harmful to customers and creditors.
Failing to keep proper accounting records
Poor financial governance may suggest negligence.
Preferential payments
Paying certain creditors, often connected parties, over others shortly before liquidation.
Unexplained asset disposals
Selling equipment, vehicles or stock at undervalue or without proper documentation.
Failing to submit returns or pay taxes
Persistent non-compliance may be seen as misconduct.
It is important to remember that the purpose of the conduct review is to identify serious issues, not to punish directors for genuine mistakes or challenging trading conditions.
What happens after the report is submitted
Once the Insolvency Practitioner completes the report, it is sent confidentially to the Insolvency Service. Directors are not usually given a copy, and creditors cannot access it. The Insolvency Service then assesses the information provided and decides whether further investigation is necessary.
In most cases, no further action is taken
If the Insolvency Service is satisfied that the directors acted reasonably, the matter ends there.
In some cases, further questions may be asked
If something requires clarification, the Insolvency Service may contact the director directly or request additional information from the Insolvency Practitioner.
In rare cases, action may be taken
If serious misconduct is identified, potential outcomes include:
- Director disqualification (up to 15 years)
- Personal liability for company debts
- Legal proceedings
However, these outcomes are generally reserved for cases involving dishonesty, fraud or significant creditor harm.
Why directors should not fear the conduct report
The director conduct report is often misunderstood as a test that directors must pass. In reality, it is simply a tool to safeguard creditors and uphold business standards. Most directors whose companies enter liquidation have acted in good faith and are unlikely to face any negative consequences.
Directors who have sought early advice, attempted to protect creditors and kept proper records typically have nothing to worry about.
How Simple Liquidation supports directors throughout the process
Navigating a liquidation can feel overwhelming, especially when directors are concerned about their personal responsibilities or the implications of a conduct report. That is where Simple Liquidation can help.
Simple Liquidation was designed to provide directors like you with a quick and simple solution to liquidate a company. Our liquidators are authorised by the Insolvency Practitioners Association and the Institute of Chartered Accountants in England and Wales. Jamie Playford FABRP MIPA, Alex Dunton MABRP and Michael Roome MABRP are Insolvency Practitioners licensed to act in the UK by the ICAEW, and have a team of experienced, knowledgeable people who will guide you through the process from start to finish.
Simple Liquidation is not an intermediary, broker or sales company. We are an experienced team of insolvency professionals with a wealth of knowledge and experience in dealing with liquidating any size of business. You will always speak with a qualified professional who understands your situation and can provide tailored, practical advice.
If you have concerns about your responsibilities or the conduct report process, we are here to help you understand your position clearly and confidently. We offer free, no-obligation conversations to help you determine the best course of action for you and your business.