24th July 2020
If your company is facing insolvency, as a company director you may be wondering when you could have personal liability for its debts.
Normally, one of your most important duties is to act in the best interest of your company.
However, when a company is unable to pay its debts, the director needs to act in the best interest of the creditors, meaning that the director should not act in a way that increases the company’s debt or should not favour one creditor to the detriment of another.
As a director, you could be personally liable and/or disqualified from being a director for up to 15 years if it is discovered that you failed to fulfil your duties and did not act in the best interest of the creditors.
You could be held personally liable for your company’s debts in the following instances:
A liability is a monetary obligation the company has; it is usually a debt owed by the company and appears under different forms (bills, invoices, interest, bank loans etc).
When choosing to incorporate a limited company, a separate legal entity is created, with a clear distinction between the company and its directors and shareholders.
This means that in most cases, the company director or the shareholders are not held personally liable for the company’s debts. If the company fails, you will lose what you invested in the company.
We will now cover each situation when a director could face personal liability for the company’s debts:
If you find yourself in one of the situations detailed above, you might be expected to pay your company’s debts as if they were your personal debts.
Should the directors have no assets to be held liable for the business’s debts, they would need to explore other options, including personal bankruptcy.
If you need more guidance, get in touch with Hudson Weir today. We’re more than happy to talk you through anything related to insolvency and administration.
Hudson Weir are an established firm of Insolvency Practitioners who specialise in business recovery and corporate financial solutions. Hudson Weir provides industry leading, nationwide services for its clients with the intention of easing financial pressures and providing recovery strategies for struggling businesses.More about us
Hudson Weir Ltd (Company number 09477593) is a company registered in England and Wales.