Directors can be personally liable for debts of a failed company - but only in certain circumstances. Our specialist defence team can help advise you on any claim by a liquidator, administrator or creditor. We successfully defend many directors each year and have done so since 2002.
I would strongly recommend using FWJ for director disqualification matters. Tactically and commercially they played it just right and I am now able to get on with my business life without the worry of disqualification hanging over meA director we defended in disqualification proceedings
When a company is running smoothly and has no solvency issues then the directors’ duty is to promote the company’s success and to act in the interests of the shareholders generally.
Providing a director has not been guilty of any misconduct during this time, then they will not have any personal financial liability to the company, unless, for example, they have provided a personal guarantee which may be called in.
Once it becomes clear that a company is facing financial difficulties and it is likely that the company will become insolvent, then the duties of directors change from being predominantly to the shareholders to being to the company’s creditors instead.
For these purposes, there is no difference between a director that is signed up as a
These duties apply equally to all.
It is often difficult for directors who are in the thick of it to know when their duties shift from being owed predominantly to shareholders, to being owed to the creditors instead. However, because of the potential consequences against a director during this period, it is very important that all directors are fully aware of what is happening in the company and are able to take a step back and consider as objectively as possible the realistic position of the company.
Take accounting / financial advice if you can
It is much easier to assess the company’s position when you are fully up to date with accounts and forecasts. Ideally you would have an independent expert who can look at this with you, for example your accountant or lawyer, or other independent business recovery expert who can assess the company’s situation from an independent perspective.
The danger zone for directors
Once a director is in this period where the creditors’ interests override the shareholders’ interests then this is the danger zone. They might incur personal liability over their acts as directors. If the company subsequently goes into liquidation, then a liquidator can look back on the past conduct of the director and might decide to take action against a director.
- wrongful trading – when a director knew that there was no reasonable prospect of being able to pay creditors, yet continued to trade, increasing credit that won’t be paid;
- transactions at an undervalue – where a director allows assets of the company to be either given away or sold at a significant undervalue, often for their benefit in some way;
- preference – where a director may repay certain creditors in preference to others, usually for example directors loan accounts or monies lent to the company by relatives.
This may be for any number of misconduct, some examples of which are:-
This is just a sample of the potential situations under insolvency legislation where directors need to be aware of their duties and protect themselves from potential personal claims against them by a liquidator.
If you are a director that is either in an insolvent company, or you think that you might be heading that way, we strongly recommend that you seek expert legal advice to review whether your conduct could in any way be challenged, and how you can avoid this happening. Contact one of our friendly experts today who can look at your situation and talk you through the legislation.
Equally, if you are a director who is already facing a claim by a liquidator, either for personal liability or under directors’ disqualification proceedings, then contact our expert team here today. We are one of the leading teams in the UK acting for directors in these matters on a daily basis, and can discuss your situation with you in confidence.
Whatever your concerns, our brilliant director team can help you put your mind at rest. Contact us now for expert help.