Can directors be personally liable for a company’s debts?
One of the great advantages of trading through a company is to take advantage of ‘limited liability’. This means that, unless you have personally guaranteed a liability – for example to a bank or landlord – then as a director you are not responsible for the company’s debts if it goes bust.
However, an important exception to this principle of ‘limited liability’ is that a director can be held personally responsible by a liquidator if they allowed the company to carry on trading after it became clear that it would go into liquidation.
A company director can be held personally liable for losses incurred by a business which are proven to be the result of board decisions, or a failure act properly.
It is beyond the scope of this post to list all the various matters for which directors can be held to be liable. However, directors should be aware of the effects of the Company Directors’ Disqualification Act 1986, which could lead to the disqualification from acting as a director of a company for a period of between two and 15 years, and the Insolvency Act 1986 which gives rise to the possibility of directors being made personally liable for the company’s debts, the Health and Safety at Work etc Act 1974, and the Corporate Manslaughter and Corporate Homicide Act 2007.