January 26, 2023
In a world of complex financial regulations, many UK company directors and shareholders may find themselves asking the question, 'Can I be made personally liable for my limited company debts?' The truth is that the risk of personal liability varies depending on the circumstances surrounding your limited company's insolvency. This article seeks to provide the answers that directors and shareholders need to understand the risks of being made personally liable in the event of their company’s insolvency or liquidation.
What Is the Risk of Personal Liability?
When a limited company faces insolvency or a liquidation process, directors and shareholders may have concerns about personal liability for company debts. If a director has misused their position or acted unlawfully in any capacity, they may be held personally liable for certain debts incurred by the company. The main risks to personal liability include:
Wrongful Trading: If a director has kept the company trading, despite it being insolvent, creditors may pursue them for any resulting debt, as well as any other liabilities.
Misfeasance: Directors can be held personally liable for any losses caused to the company, if it can be shown that they have ‘misfeased’ or abused their position.
Fraudulent Trading: If a director is found to have been involved in fraudulent trading, they may be personally liable for any debts as a result.
How Can I Reduce My Risk of Personal Liability?
Unfortunately, there is no guarantee that directors and shareholders will not be held personally liable in the case of their company's insolvency or liquidation. However, steps can be taken to reduce this risk. These steps include: .
Keeping Accurate Records: Directors should ensure all financial records are accurate and up to date.
Maintaining Good Financial Standing: Directors must ensure that the company maintains a good financial standing by keeping its debts under control.
Taking Professional Advice: Directors must also seek adequate and appropriate advice from an insolvency professional.
Exploring Exit Options: Depending on your company’s situation, exploring exit options such as company share sale or voluntary liquidation