Advice for Company Directors
Clarke Bell can assist you with any queries you may have regarding your company’s position, or any other personal advice you may require as a company director. We provide a full range of insolvency services and our team are here to make everything clear and understandable during what may be difficult and anxious times for your business.
What Are My Personal Liabilities as a Director?
As a general rule of thumb, directors are not personally liable for the debts of a company. The company itself is responsible for all assets and debts and is regarded as an ‘artificial person’ in law. This is the main reason for launching a limited company in the first place, so that the liability of shareholders and directors is limited. Shareholders are only liable for any unpaid share capital, which is of no real importance.
What Are Personal Guarantees?
Directors may be faced with personal guarantees to creditors (banks, landlords, asset finance companies, etc) meaning they will be liable for whatever shortfall a creditor may suffer in the event of liquidation. If there is more than one guarantor on a guarantee, then the one that has the most personal assets stands to lose more.
What Are the Chances of Being Banned?
A liquidator is obliged to report any insolvent trading actions (under section 214 Insolvency Act) to the Disqualification Unit. They will then consider chasing the director in question to issue a ban between 2-5 years in smaller cases and up to 15 years in very serious cases. Disqualification proceedings at the High Court are very expensive, meaning you are looking at around £100k in legal fees alone. Therefore, the best option in these circumstances is to take the alternative offer of an undertaking and resign all directorships for an agreed period of time (generally no longer than 5 years). So in answer to the question, in the case of insolvent trading, the chances of being banned are very real.
Aside from insolvent trading, the following issues of unfit conduct can also be reported to the Disqualification Unit:
- Misuse of Crown money
- Failing to maintain proper accounting records and make statutory returns
- Making preferential payments
- Failure to cooperate with a Liquidator
- Transferring assets at an undervalue
- Breach of Fiduciary Duty to act in the best interests of the company
- Retention of company property
Can I Be Made Personally Liable for Any Debts?
By significantly increasing liabilities and incurring additional trading losses, directors are potentially exposing themselves to personal liability for some of the debts. This exposure to risk is down to the powers of the liquidator and their decision to request directors’ contribution towards the liquidation (if evidence suggests insolvent trading at a time the director knew the company was insolvent). However, in reality, the risk of an insolvent trading action is low. Funds are often not available for the legal costs of an application to the High Court.