Directors of struggling companies must adhere strictly to legal duties or risk personal consequences, an expert has warned.

Mike Pavitt, an insolvency specialist from Southampton-based Paris Smith and an R3 trade body member, cautioned that corporate insolvencies are nearing 2,000 monthly.

This surge isn't just due to economic challenges, but also stems from shifts in legal interpretations, innovative claim methods, and heightened government enforcement.

The Insolvency Service is particularly focusing on misconduct related to bounce-back loans, investigating insolvent companies that still owe repayments.

Mr Pavitt, a lead partner at the Southampton firm, outlined critical steps limited company directors can take to shield themselves from personal liabilities.

These include staying updated on legal obligations, seeking professional advice when necessary, and meticulously recording board decisions.

Mr Pavitt said: “The goalposts are shifting. Directors who thought they knew how to manage their risk before the pandemic and before recent court decisions need to think again, tighten up their boardroom behaviour and get themselves some refreshed training on where their risks lie.

"One of the biggest reasons directors need to be taking this now more seriously than ever before is that we have now had two massive legal decisions – the 2022 Sequana case which helped redefine directors’ duties during challenging circumstances for companies and this year’s BHS decisions in which former directors were found personally liable in record amounts for what is now being termed ‘misfeasant trading’.

"In my experience a lot of directors are very reticent about putting their hands in their pocket for professional advice, which can be a false economy. Skimping on the cost of a formal liquidation, for example, so you can attempt to quietly dissolve your company is likely to be a bad investment.

"Deciding to answer correspondence from the Insolvency Service which might lead to disqualification and compensation orders without taking legal advice first is a similarly bad idea. Taking and following professional advice in these situations can offer the directors a good degree of protection."

Mr Pavitt also urged directors to fully cooperate with insolvency practitioners if required and to engage with experts to navigate financial troubles.

He warned against unlicensed advisors promising quick fixes, emphasising that these shortcuts often heighten personal liability risks.