As the recession deepens, more and more company directors could find themselves battling to keep their businesses afloat.

Whilst they would naturally want to do everything possible to come through these economic difficulties, they must guard against soldiering on for too long trying to rescue a business which has no chance of survival.

If they do they could be accused of wrongful trading and run the risk of financial ruin as they become liable for the debts of their business - even if it is a limited company. The danger is that some directors fail to recognise or refuse to accept that their business has no chance of avoiding insolvency. Understandably they may have an emotional attachment to a firm they have set up themselves and feel a tremendous loyalty to their staff. Or they may be trying to avoid having to pay back company loans which they have personally guaranteed.

As soon as a company becomes insolvent, directors have a legal duty to protect the interests of creditors. When formal insolvency procedures get underway, the behaviour of directors over previous years comes under investigation automatically.

They could become liable for wrongful trading if it is found that they continued entering into contracts or accepting credit after they knew or should have known there was no reasonable chance of avoiding insolvent liquidation.

The court could then order them to use their personal assets to help settle the company's debts. Directors of insolvent companies are also obliged to treat all creditors equally so they must not give preferential treatment to friends or even a company which is threatening to sue them.

Persistence is a good quality in business but directors must also recognise when the cause may be lost and then make sure they meet their legal obligations. The problem is it is very difficult for directors to identify the point at which they become insolvent so they should seek professional help as soon as problems start to emerge.

Usually the first point of contact is the accountant who is perfectly placed to look at the facts from a different aspect and provide a well-informed opinion. It is at this point that directors need to know their options. Any accountants who do not have an existing relationship with an insolvency practitioner can contact me if they have any concerns about their clients.