It’s a well-known fact that shareholders of private limited companies do not normally have any personal liability for the debts and obligations of the company. But what about the directors?
In this Q&A, experienced Corporate & Commercial Lawyer Paul Longland answers questions from directors on their personal liability.
Can a director be personally liable for company debts?
There has been a steady process over some years of increasing the potential liabilities of directors for their actions or omissions both for criminal matters and for civil liabilities or damages.
Last year the former directors of the collapsed construction group, Carillion, were fined a total of £870,000 by the Financial Conduct Authority for issuing misleading financial information about the company.
When is a director personally liable?
There are now multiple situations when a director can be personally liable.
Under The Companies Act, directors can be personally liable for making sure that the company complies with the rules for a limited company and if they don’t follow requirements for the conduct of the company itself.
There’s other legislation that has gradually introduced potential liabilities for fines or even imprisonment for directors, such as Health and safety legislation, GDPR and Competition law.
There are also provisions under insolvency legislation where directors can be made personally liable. More details on this can be found in the full article, linked to at the bottom of this page.
In what other situations can directors be liable?
Firstly, where directors breach their duty personal claims for damages from the company itself or shareholders can arise.
Similarly, a director can be personally liable to a third party if they enter into a contract but do not make it clear that they are acting on behalf of the company and not in a personal role.
In smaller companies, its especially likely for directors to be expected by third parties such as bankers, finance companies or landlords to take on liability by giving a personal guarantee.
Lastly, if a director acts as a director whilst disqualified they can be made personally liable for company debts.
Related: What makes a strong business contract? Our advice
In the full article, Paul outlines how directors can protect themselves from liability. Click here to read it.