When is a director personally liable?

Published: 11/06/2019 By Natalie Stone

As a director, it is up to you to keep a finger on your company’s pulse and to call for help if necessary. If your company is deemed to be insolvent, and wrongful trading, fraudulent trading, preference payments, transactions at an undervalue or misfeasance can be proven, you may become personally liable. This may include, but are not limited to the following actions:

  • issuing cheques when it is clear they will never be honoured;
  • incurring credit when there is little or no prospect of payment;
  • taking customer deposits when goods or services will not be supplied;
  • returning goods to a creditor when the creditor has not retained title;
  • selling goods at less than their true open market value.

Additionally, liability can often occur when personal guarantees have been given. Bank borrowings, leases on properties and HP / lease agreements can often require personal guarantees.

In conclusion, make sure you know your company’s financial position. If in doubt and you think your company could be heading towards insolvency, seek early, professional advice, both on your responsibilities as a director and on your personal position from a licensed insolvency practitioner.