Director’s Liabilities – Can a director remain liable for company debts in liquidation?
Potential Director Liabilities during liquidation remain essential for the previous directors and moving forward.
A director not to have acted responsibly opens the director up to accusations of potential wrongful or unlawful trading. Directors become exposed to penalties, disqualification or personal liability.
Upon a company realising insolvency, directors’ responsibility then transfers from looking after shareholders interest to creditors.
Please view what happens to a director of an insolvent company?
The company must cease trading, ensuring all company assets remain protected and insured.
Directors should cooperate with the liquidator with honesty to conclude the liquidation for the best outcome of the creditors while receiving full cooperation from the director. Therefore, this helps the director avoid criticism of their conduct.
What does limited liability mean?
A director may be held personally liable:-
- To a fine when the company fails to comply with The Companies Regulations 2008;
- Contracts signed on behalf of the company before its incorporation;
- Failing to make disclosures required;
- Acting in any form of management for a limited company while disqualified or taking instructions knowingly from a person disqualified;
- If the Pensions Regulator served a contribution notice to the director under section 75 of the Pensions Act 1995;
- Party to, intentionally, carry on the business with the purpose to defraud creditors or persons;
- For damages, when a director fraudulently or negligently misrepresents when negotiating a contract, with a third party;
- a director of a failed liquidated company and set a new company operating with the same or similar name within 12 months after liquidation;
- Making a false statement as to the affairs of the company deceiving shareholders or the company creditors;
- Failing to make clear they contract not personally but as an agent of the company;
- Or acting as a director while trading wrongfully or trading fraudulently under the Insolvency Act, 1986.
Are Shareholders Liable for Company debts?
The stakeholders of a ‘limited’ company remain not personally liable (as shareholders) for the company’s liabilities. As shareholders, their only obligation is to pay the company any unpaid money on their shares if asked. However, members holding office may become personally liable as a director, not as a shareholder under the circumstances detailed above.
Please read “Can HMRC hold directors liable for outstanding tax”?
Disqualification and Directors Liabilities
A disqualification order may expose you to director’s liabilities as it will ban an individual from acting as a director of a company, for a maximum period up to 15 years. Therefore, if you then breach the ban, you will then have committed a criminal offence. Thus, you then potentially expose yourself to a term in prison and or a fine. Additionally, you then may be held liable for any unpaid debts of the company.
A director’s disqualification follows an investigation into the operation of the company. Therefore, you may be accused of misconduct, unfitness, sharing in wrongful trading and other grounds.