Directors Personal Liability: a basic understanding
18 December 2019
We have looked at Directors Responsibilities and the duties that are expected under the Companies Act 2006, and we now look at Directors Personal Liability and situations where a Director could be personally liable for the actions of the company.
This is another area that Directors need to have knowledge on and as long as they have acted correctly in accordance with their required duties, these hopefully should not present an issue for the Director.
Directors Personal Liability
Directors are sometimes under the misunderstanding that because they have a limited company, there is limited liability protection for them and they can’t be personally pursued on a financial or other basis. This is not the case and there are circumstances in which a director can be personally liable (other than where a personal guarantee has been provided) and it is important to be aware of this.
Areas where a Director may be personally liable
- Where the company does not file information on time at Companies House, under the Companies Act, the Director could be prosecuted for failure by the company to make its required filings on time. It is in fact a criminal offence not to have dealt with company information on time. This can be easily avoided by ensuring that you have full knowledge of all of the filing deadlines that apply to your company documents.
- Where a company becomes insolvent a Director may be liable for wrongful or fraudulent trading under the Insolvency Act 1986 and this may result in them being pursued personally for funds to pay to the company creditors. Directors should always seek professional assistance at the first sign that a company may start to struggle and insolvency may become a threat. Often there is a solution but sadly too many businesses leave it too late before asking for advice.
- Where a company breaches its responsibilities under the Health and Safety at Work Act 1974 as the Director has the responsibility on behalf of the company to ensure these are maintained it could result in criminal sanctions on the director.
Whilst these may seen as extreme circumstances every director needs to be aware of the potential for Directors Personal Liability.