Director Personal Liability for company debts – top 5 ways to get stung

A common question we are asked is whether a director is personally liable for a company’s debts. The easy answer is “no”.  But there are a number of ways a director can be made personally liable.  The ones that get the most coverage are insolvent trading and director penalty notices but there are other more common ways.

And beware, there are proposed changes to legislation that may become law in 2012 aimed at significantly increasing the potential personal liability of directors for company debts.   But at the moment, the starting position is that a company’s debts are just that – a debt of the company and not a debt of the director.  Here are the top ways a director does end up being personally liable:

1. Director Penalty Notices – We have other pages that deal with Director Penalty Notices and you should read about the details there, but the general principle is that if you receive a Director Penalty Notice you simply must act within the 21 days allowed by the Notice.
2. Insolvent Trading – again you can read the details elsewhere on our site but the principle is that if your company is insolvent, or even possibly insolvent, don’t incur new debts.  If need be, move to a C.O.D basis.
3. Directors Loan Accounts – well in fact they are loans to a director and so a liquidator will want that loan repaid.
4. Personal Guarantees – These usually result from a Bank debt or by way of signing up with a trade creditor and agreeing to the, sometimes trickily obscured, personal guarantee clause in the supply agreement.
5. Credit Card debts – Yes, even if it is a company credit card it is a standard clause for all major credit cards that the holder of the card is personally liable for any balance unpaid.

There will be a lot more on the new laws on director personal liability over the next few months as several new laws are likely to be passed.