COMPANY directors are being warned of the importance of documenting their actions if they are concerned their business might be insolvent.

Failure to comply with duties enshrined in law could lead to financial penalties or disqualification as directors, insolvency experts point out.

Among the responsibilities applying to all company directors is the need to keep accurate and up-to-date records, especially when a business is in financial difficulties and facing the prospect of insolvency.

Elaine Wilkins, of the Bournemouth office of insolvency practitioner Antony Batty, said: “I am having an increasing number of meetings with companies in financial difficulty where the directors are unaware of the importance of documenting their actions.

“This could be as simple as sending emails to themselves and/or fellow directors stating why they are making the decisions and taking the actions they are. Such actions could make life a lot easier for directors if insolvency strikes.”

The four main areas of directors’ duties are financial, trading, fiduciary and administrative duties.

Antony Batty warns that all must be followed to the letter of the law, and that maintaining up-to-date and accurate records falls into the administrative duties category. This includes the need to keep evidence of any transactions, to ensure they are at full value and “arms length”, and keeping minutes of major decisions.

Good record keeping can provide evidence of a company’s financial position when creditors and other stakeholders are assessing its solvency and viability. It helps ensure compliance with statutory requirements such as filing annual accounts with Companies House.

It can also be used to protect directors form the risk of personal liability and can help demonstrate that directors acted responsibly in managing company finances.

Record keeping can also minimise the impact of insolvency if it does occur, by making the process less complicated and costly, and ensuring all creditors are treated fairly, Antony Batty says.

If an insolvency practitioner has reason to believe an insolvency was caused by directors not carrying out their responsibilities correctly, they are required to investigate, and the outcome be a disqualification, an insolvency claim or even a custodial sentence, the business said.

One of the first things they need to see is evidence of up-to-date and accurate books and records.