Introduction to Prospect Legal

Prospect Legal is a trusted name in corporate and insolvency law, offering expert legal services to businesses and directors facing insolvency-related challenges. Our team specializes in protecting directors from personal liability risks associated with corporate insolvency, ensuring compliance with legal obligations and minimizing exposure to financial and legal consequences.

Where You Can Find Remedies?

When directors face liability issues during insolvency, they can seek remedies through:

• National Company Law Tribunal (NCLT) – The primary adjudicating authority for corporate insolvency cases in India.
• High Courts & Supreme Court – For appeals and legal recourse beyond NCLT decisions.
• Insolvency and Bankruptcy Board of India (IBBI) – The regulatory authority overseeing insolvency proceedings.

If you are facing potential liability, seeking expert legal guidance early is crucial. Contact Prospect Legal for a consultation to explore your legal options.

Understanding the Director Liability Process

Voluntary Process (Director-Initiated)

1. Recognizing Financial Distress – Directors should identify insolvency risks early.
2. Seeking Legal Advice – Engaging a legal team to assess exposure and take preventive measures.
3. Corporate Governance Compliance – Ensuring company records, decisions, and financial statements are accurate.

Compulsory Process (Court-Mandated)

1. Insolvency Proceedings Initiation – Creditors or regulators may file for insolvency.
2. Director Examination – Authorities review director conduct and financial transactions.
3. Legal Consequences – Directors may face penalties, asset seizures, or disqualification.

Legal Protection Under Section 66 & Section 167 of IBC

The Insolvency and Bankruptcy Code (IBC), 2016, outlines directors’ responsibilities and liabilities during corporate insolvency. Key legal provisions include:

Section 66: When Can a Claim Be Filed?

• If directors engage in fraudulent trading or wrongful trading, they may be held personally liable for company debts.
• A claim can be filed if directors knowingly continued business operations while the company was insolvent.
• Creditors, insolvency professionals, or regulators can initiate proceedings against directors for misconduct.

Section 167: Powers of the Adjudicating Authority

• The NCLT can disqualify directors involved in fraudulent or wrongful trading.
• It can order directors to repay losses incurred due to their actions.
• The tribunal has the authority to freeze assets of directors suspected of misconduct.

Process of Remedy Through Prospect Legal

Step 1: Initial Consultation & Risk Assessment

• Analyze the financial status of the company.
• Identify potential risks of personal liability for directors.
• Develop a legal strategy to mitigate exposure.

Step 2: Legal Documentation & Filing

• Prepare necessary legal documents to defend against claims.
• Assist in filing responses to NCLT or other regulatory bodies.
• Ensure compliance with IBC and Companies Act requirements.

Step 3: Compliance & Negotiations

• Work with creditors, insolvency professionals, and authorities.
• Negotiate settlements to reduce personal liability.
• Ensure directors meet their fiduciary duties to avoid future claims.

Step 4: Resolution & Final Actions

• Obtain legal clearance and protection from personal claims.
• Assist in restructuring or liquidation if necessary.
• Guide directors on post-insolvency obligations and restrictions.