Are directors of a company liable for debts?

Debt Advice

Directors of a private limited company (“Ltd or Limited”) are officers of the company and carry no automatic personal liability for the debts of the company.

Personal guarantees

However, there are a limited number of occasions when a director will be exposed to personal liability, the most common one being upon the signing of personal guarantees (“PG”) to obtain finance from banks or trade suppliers. In this type of scenario, assuming the PG has been validly executed then the failure of a company to repay the debt will crystallise the PG and the guarantee will be “called in” by the creditor.

 Breach of duty

Otherwise the only other time a director will be held personally liable for the debts of a company will be in instances where it is held that there has been a breach of his or her duty. Examples of these types of breaches are Wrongful Trading, Misfeasance or failing to properly deal with Section 216 of The Insolvency Act 1986. In these situations, in addition to facing a financial penalty, he/she can also be disqualified from acting as a director for a period of between 2 and 15 years. If your company is experiencing financial difficulties it is very important that you receive a full explanation as to the likely effects or repercussions of a formal insolvency process on you as directors.

Contact the Insolvency Experts

Here at The Insolvency Experts, we have extensive experience when it comes to advising the legalities and available options for a company director.  Speak to one of our Insolvency Practitioners today. Contact us online, or call us directly on  0300 303 8284.