The key issues for lenders are:
- Disqualification from acting as a director – see Keyman disqualification however it is possible to apply to court for dispensation).
- Personal strife – the stress of a bankruptcy process and the strain on family life can result in management taking their eye off the business.
- Impact on guarantees and warranties to the funder – historic matters would fall and be extinguished by the bankruptcy process and clearly the value of a guarantee from some one who is or has recently been bankrupt would be negligible.
Before lending to a phoenix company lenders should undertake a risk assessment of the likelihood of key directors being made bankrupt as a result of their actions in the failing business. In addition directors in such situations should take advice as often there are options for dealing with the situation and avoiding bankruptcy.
Previously…
