How do I resign as a company director in Scotland and remove myself from company records?

Resigning as a company director is not something you should rush. These are the steps to follow to ensure everything is done officially and to understand when liability for your actions or financial decisions could arise. 

Understand the implications 

Before you resign, consider the requirements you’ll need to meet. The first place to look is your director’s service contract, which will usually detail the process to follow when a director resigns, including the notice period and procedure.

The company’s articles of association and shareholders’ agreement may also contain important information. For example, the shareholders’ agreement may stipulate that the departing director must transfer their shares when they resign. If that’s not the case, you should not resign until you have made an agreement about what will happen to your shares. The articles of association may also stipulate a minimum number of directors the company must have. If your resignation breaches this requirement, the company must find a replacement.

Another factor to consider is your director’s loan account. If it’s overdrawn or in credit, think about how you’ll repay the money to the company or vice versa. And, if you’ve signed a personal guarantee for company borrowing, explore if you can be released from it and how that will work.   

Inform your fellow directors

Once you understand the process and your obligations, you can inform your fellow directors of your decision. Although it’s not a legal requirement, it’s good practice to give notice of your resignation in writing. Your notice should stipulate the specific date when you will cease to act as a company director. You should also inform clients, suppliers and other stakeholders.

It’s advisable to send your notice of resignation to the company’s registered address by recorded delivery and keep proof of posting. That provides evidence of your leaving date in the event that there’s a delay in the business updating its records at Companies House. 

Update Companies House

It’s the job of the company rather than the departing director to inform Companies House of their resignation. It can do this by completing and submitting the TM01 form online. The form might be rejected if you submit it yourself. The form must be signed by the resigning director or a remaining officer of the company and submitted within 14 days of your official resignation date.

The company must also update the register of directors, the register of directors’ residential addresses, and the register of shareholders if the resigning director’s shares are transferred.

Submitting the TM01 form means you’ll no longer be listed as an active director at Companies House, but you will be listed as a resigned director and your name, address and date of birth will usually be visible.

Importantly, once you resign, you will not be liable for any decisions made by the company following your resignation unless you stay on as a shadow director the direction the company takes.

You cannot be held liable for anything that happens to the company due to the decisions made after you resign. However, if your decisions or conduct as a director contributed to the business’s failure, you can face penalties. 

If the company enters a formal insolvency procedure such as Administration or Liquidation, an Insolvency Practitioner will investigate whether the conduct of directors contributed to its decline. They can look back over the previous years for evidence of wrongdoing and scrutinise the actions of all the directors who were in place at the time. 

If they find evidence of misconduct, you can receive penalties including fines, personal liability for company debts and disqualification from acting as a director for up to 15 years.

The simple answer to that question is yes. If you sign a personal guarantee to secure company borrowing, it will stay in place even after you resign and it could be called in if the business defaults. Clearly, that’s not a great situation to be in, particularly as you no longer have any influence over the direction of the company or its financial decisions.

Before you resign as a director, you should explore whether you can be released from a personal guarantee. Lenders do not usually allow personal guarantees to be transferred between directors, but you may be able to get written consent from the lender to be released. The lender’s decision to grant your release will depend on various factors, including the company’s health.

If you resign as the only director of a company, you must find a replacement quickly as it will be in breach of the Companies Act 2006. If you do not find a replacement within a given timeframe, Companies House can start the process of winding the company up. If you are a company shareholder, you can appoint another director to run the business for you. You will retain the same level of ownership and control unless you sell some of your shares.

On the other hand, if the company is solvent, rather than resigning, you could attempt to sell the business or its assets. If that’s not possible, you could strike off the business or enter it into a Members’ Voluntary Liquidation (MVL) to extract the profits in a tax-efficient way.

If your business cannot pay its debts, resigning as a director is not an effective way to escape them. This will be viewed badly and the Insolvency Service will investigate your conduct and potentially hand down penalties, including personal liability for some or all of the company’s debts.

Rather than resigning, you should deal with the outstanding debts properly by closing the company via a Creditors’ Voluntary Liquidation (CVL). An Insolvency Practitioner will sell the business’s assets, use the proceeds to repay its creditors as far as possible and any remaining debts will be written off. You may also be eligible for director’s redundancy pay.

If you are considering resigning as a company director or are concerned about its financial position, we can help. We can advise you on the impact of personal liability issues and personal guarantees and discuss the most appropriate closure methods to protect your position. Contact our team for a free, same-day consultation or to arrange a meeting at one of our offices in Scotland.