In UK insolvency law, the actions of directors in the run-up to a company’s collapse are under increasing scrutiny. This crucial timeframe, often referred to as the “twilight period”, can determine whether directors face claims for misfeasance, wrongful trading or even disqualification.
At IL Advisory, we’ve seen a clear trend in 2024 and into 2025. Investigators are digging deeper into this pre-insolvency window and applying much tougher standards. Directors who treat this period casually risk serious personal consequences.
What Is the Twilight Period?
The twilight period refers to the weeks or months leading up to a company’s formal insolvency, usually marked by:
- Failing to meet tax, rent or supplier obligations
- Inability to raise funding or repay loans
- Mounting creditor pressure
- Directors suspecting or knowing the company is no longer solvent
It is during this period that directors must shift their focus away from shareholders and toward creditors, as required by UK law once insolvency is foreseeable or actual.
Why This Period Matters to Investigators
When a company enters liquidation or administration, one of the liquidator’s primary tasks is to review director conduct leading up to the collapse.
Investigating officers look for warning signs the directors ignored and assess whether their decisions helped or harmed the creditors’ position. If directors continued to trade, took out loans, paid selected creditors or withdrew funds during this period, they may face liability even if their intentions were well-meaning.
What Investigators Examine During the Twilight Period
1. Trading While Insolvent
Was there a realistic prospect of avoiding insolvency? If not, continuing to trade may qualify as wrongful trading under Section 214 of the Insolvency Act 1986.
Investigators look for:
- Creditors being added while old debts remain unpaid
- Directors claiming recovery was “around the corner” without evidence
- Lack of proper cash flow forecasting or board minutes showing risk analysis
2. Preferential Payments and Connected Party Dealings
Investigators assess whether certain creditors, especially those connected to the directors, were favoured in the final weeks.
Common red flags include:
- Repayment of director loans
- Payments to family, friends or related companies
- Transferring assets out of the business for less than market value
These may be challenged as preferences or transactions at undervalue. Directors can be held personally liable for the loss to creditors.
3. Deterioration of Records or Unexplained Withdrawals
Poor financial documentation is a warning sign. If records are missing, incomplete or suddenly stop just before collapse, that may suggest misconduct.
Investigators look closely at:
- Personal expenses being paid from the company account
- Loans to directors or staff without agreements
- Sudden withdrawals or cash transfers with vague justifications
4. Failure to Take Advice or Document Decisions
Directors who fail to seek insolvency advice, hold board meetings or document key decisions make it easier for investigators to allege recklessness or negligence.
Best practice includes:
- Keeping board minutes during periods of financial distress
- Documenting forecasts, assumptions and justifications for continuing to trade
- Seeking third-party advice from legal or insolvency professionals
Case Study: A Director Disqualification Triggered by Poor Twilight Conduct
In one 2024 case, a retail director continued to order stock on credit and pay marketing consultants even after missing rent and tax deadlines. Despite being aware of severe cash flow issues, no board meetings were recorded and no advice was sought. Within six weeks, the company entered liquidation.
The liquidator successfully pursued a wrongful trading claim and reported the matter to the Insolvency Service, resulting in a five-year disqualification. The director was also held personally liable for a portion of unpaid supplier debts.
How Directors Can Protect Themselves During the Twilight Period
- Recognise the signs of financial distress early and take them seriously
- Shift focus to creditor interests as soon as insolvency is likely
- Maintain detailed board minutes and financial records
- Avoid selective payments or transfers to connected parties
- Seek professional advice and act on it
Final Thoughts
The twilight period is not a grace period. It is a legal minefield. Decisions made during this time are often judged with the benefit of hindsight by investigators, courts and creditors.
Directors who act honestly, take advice and put creditors first can often avoid liability even if the company ultimately fails. Those who act carelessly or try to protect themselves at others’ expense risk severe personal consequences.
At IL Advisory, we support directors who are navigating financial difficulty and help them make defensible, well-documented decisions during the most critical phase of their business.
Speak to IL Advisory Today
If your company is under pressure and you’re unsure how to manage your responsibilities, early advice is essential.
- Confidential consultations for directors
- Strategic support based on real enforcement trends
- Practical guidance to reduce risk of misfeasance or disqualification
Call 020 7692 8456
Email info@iladvisory.co.uk
IL Advisory: Helping Directors Stay Compliant, Informed and Protected.