Directors and Officers of a company are usually protected by the Company through its status of a Limited business. In normal circumstances, a director is not personally liable for paying company debts. This means that if a limited company is unable to meet it liabilities, only the company’s assets are at risk but in certain circumstances, a director can be held personally liable.
When does a director become liable for company debt?
Company directors are always expected to act in the best interests of the company. Directors’ duties are outlined in the Companies Act 2006 legislation. There are certain circumstances where a company director can be liable for the company liabilities.
This is a technical area of law and each situation will require investigation. In summary, a Director can find themselves personally liable in the following circumstances:
- A personal guarantee has been provided
- Wrongful trading;
- Fraudulent trading
- Shares which are not fully paid up
- A Director is acting in their personal capacity and not in the name of the company
- Fraud or misrepresentation or acting in contravention to the law
- Overdrawn Directors Accounts
What are the duties of a director?
The Companies Act 20016 sets out statutory duties which include the following:
- duty to act within powers
- duty to promote success of the company
- duty to exercise independent judgement
- duty to exercise reasonable care, skill and diligence
- duty to avoid conflicts of interest
- duty to not accept benefits from third parties
- duty to declare interests in proposed or existing transactions or arrangements with the company
Our specialist directors’ liability solicitors have a wealth of experience in both defending and taking action against a company director who has breached their duties. We can help both individuals and companies pursue or defend legal actions.
What is misfeasance?
A claim for misfeasance can be issued against a director following a company’s liquidation pursuant to s212 of the Insolvency Act 1986. Misfeasance can apply where a director:-
- misapplies or retains the company’s money or other property;
- becomes accountable for any money or other property of the company; or
- breaches any fiduciary or other duty in relation to the company
If a director is found guilty of misfeasance, the director can be ordered to repay, restore or account any money or property to the company. Alternatively, the director may be ordered to compensate the company for the director’s misfeasance or breach of duty by making a contribution to the company’s assets.
What is wrongful trading?
An office holder can make an application to the court against a director for wrongful trading in circumstances where a director knew or ought to have known prior to the commencement of administration or liquidation that there was no reasonable prospect of the company avoiding insolvency.
The definition of director in the Insolvency Act 1986 is wide and includes individuals acting as directors even though not named as a director. Such individuals are often referred to as shadow directors.
If a director is found guilty of wrongful trading, a court can order the director to make a contribution towards the company’s assets.
What is fraudulent trading?
An application to the court for fraudulent trading can be made to the court during an administration or winding up of a company if the business of the company was carried on for a fraudulent purpose or to defraud creditors.
This is a serious action which involves claiming dishonesty and if you are facing claims of fraudulent trading, it is important to obtain expert advice to manage the claims and ensure a favourable outcome is achieved. Lincoln & Rowe have a team of accomplished solicitors, proficient in insolvency and act for directors of both large and small companies, contact us to find out how we can help.
Speak to our insolvency solicitors today
At Lincoln & Rowe, our company legal team act with dexterity and proficiency to advise on possible risks and consequences within a range of commercial disputes, including those which may result in a company director being personally liable for the liabilities or actions of a company.
Lincoln & Rowe specialist director liability solicitors can assist directors that are concerned about facing a legal claim against you, or if you would like clear, concise legal advice regarding suing a director personally. Lincoln & Rowe are specialists in providing advice to company directors and regarding taking legal action towards one. If you would like to discuss your concern, talk to our experienced team today.
Make an online enquiry, send an email to firstname.lastname@example.org or call us on +44 (0)20 3968 6030.
Who we can help
Our commercial litigation lawyers at Lincoln & Rowe possess significant depth and breadth of dispute resolution expertise gained from years of experience advising on high-value and complex litigation. We act for individuals, owner managed enterprises, national and international businesses based in the UK and abroad in a range of jurisdictions. We advise both claimants and defendants.
Where you can find us
Lincoln & Rowe Solicitors are based in the heart of London and just a few minutes’ walk from the Royal Courts of Justice. Our full address is 81 Chancery Lane, London WC2A 1DD