What are the official stages of the process?
The director resignation procedure is fairly straightforward with a limited company. The first step is to put your resignation in writing and share copies with any other directors/shareholders.
While you do not need to state the reason you are leaving – you may want to if you share close relationships with your colleagues – but you do need to state the date the resignation takes effect.
You will also need to notify Companies House. Once you have alerted your fellow directors as to the decision, you must complete a TM01 form and send to Companies House. This form will see your name removed as director from the records of the business you are leaving. It may also be prudent to share the news with your customers/suppliers, and let them know their next point of contact when you leave the company.
Once all of the above is done, your director responsibilities after resignation are no more. Your director liabilities are over and you can not be held responsible for anything that occurs within the company after that date.
However, if the company were to enter an insolvency procedure and any evidence of malpractice was found during your time as director, you will be held accountable for the consequences.
Limited companies are protected by limited liability. Essentially, this means as a director, you are not personally responsible for any company debts.
Having said that, should the company need to enter into an insolvency procedure, your conduct as a director will be investigated by the insolvency service, if you acted as a director in the 3 years prior to insolvency. Consequently, resigning as a director immediately before insolvency will not absolve you from your responsibilities as a director.
You will still be held liable after your resignation, if you have an overdrawn directors loan account or have taken assets from the company without paying for them. You will also still face disqualification as a director if the company has been trading at the expense of the crown whilst you were in office.
What if I have personal guarantees?
Resigning as director will not mean that you are released from any personal guarantees you have given for the business. Limited liability offers the directors protection from company debts. However, if you have signed a personal guarantee against a company loan, you will still be jointly and severally liable for that debt if the company can longer make repayments.
In such cases, you must step in and use your own, personal funds to repay the creditors. A director resignation procedure will not invalidate this agreement.
You must think very carefully as to whether you do want to resign if you have given personal guarantees. As mentioned earlier, your director responsibilities will cease after your resignation, along with your control over how the company is run. Similarly, you will no longer have the permissions to access company accounting/ financial information.
If the company were to make a wrong move in its particular market, you do not have the power to help. In the very worst case, you may even be contacted for repayments to creditors if the business does not have the assets to meet to repay debts. You can ask to be released from the personal guarantee upon your departure as director, however. Although it’s possible that this may only be granted if the company has not defaulted on the agreement at the time.
It’s also worth noting that you must pay back any loans borrowed from the company. On the other hand, if you are owed any money in unpaid wages etc, this should also be brought up to date on your departure.
If you are considering resigning as a director and are seeking guidance for doing so, our BusinessRescueExperts can help ensure you understand the procedure and what it means for your future.