Personal liabilities of company directors for failure

Author: Henry Shinners

Categories: Business risk, Governance, Leadership
Tags: Directors Liabilities, Personal Liability

Henry Shinners, Partner - Restructuring & Recovery Services, Smith & Williamson, on personal liabilities of company directors.

Many business people are unaware of the personal liabilities of company directors in the UK. Tough laws create the potential for personal liabilities of company directors where a company carries on trading when insolvent.

There is a risk for directors personally that they could be found liable personally for their company's liabilities.  Many directors aren’t aware of that.  If they carry on trading in business beyond the point that they know or ought to know that it's not going to avoid insolvency, then a subsequently appointed liquidator could apply to court to have them found personally liable.

That is a big risk for directors and one that not many are aware of.  Another thing for directors to watch out for when they have businesses that are in financial difficulty is the question of preferences.

So for example if they have given a personal guarantee to a bank, and they arrange, in the period leading up to the appointment of a liquidator or administrator for that loan to be repaid, so to take away their personal guarantee liability, then that's something that can be overturned by the liquidator of the company subsequently.

So they're not avoiding that liability.  That also applies to director's loans account, if they have taken loans from the company... sorry if they have given loans to the company and either arranged for those to be repaid just before the company goes into liquidation or administration, then that's a transaction that can be overturned by the liquidator or administrator.

So that also applies where directors have given loans to their companies and in the period leading up to the company going into some form of insolvency process, whether that's administration or liquidation, they arrange for those loans to be repaid by the company to themselves.  That's a transaction that a subsequently appointed liquidator would certainly seek to return and would be successful in doing so.

For more information on the personal liabilities of company directors as well as other types of risk, you can watch more videos from Henry Shinners here.

Related videos