Outlines UK law and practice relating to the responsibilities of directors of insolvent companies with particular reference to small firms: and explains the changes introduced by the 1985 and 1986 Insolvency Acts and the Company Directors Disqualification Act 1986. Considers the practical effects of the new law, referring to relevant cases; and stresses the psychological barriers which directors erect against facing the risk of failure and taking action to avoid it. Notes that the Insolvency Act 2000 allows directors to be disqualified without the need for costly court proceedings and makes practical suggestions on how they can protect themselves. Describes four stages of organizational crisis from denial to collapse, pointing out how managerial decision making becomes impaired in this situation and referring to relevant research. Calls for further research to “inform future legislation”.