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Directors and Personal Liability

It is often assumed that there is a shield protecting directors from personal liability when they are acting in their capacity as a director. However, the shield is not infallible and there are instances where directors can be held personally liable for their acts or omissions.

Given the potential scope of their obligations and duties, it is not surprising that there are numerous instances where directors may find themselves personally liable such as where the director is implicated in bribery or where they are guilty of fraudulent or wrongful trading. Some further examples of when a director may find themselves personally liable are set out below:

  1. Where a director has approved a loan to another director without first obtaining the necessary shareholder consent;
  2. Where the director has failed to obtain the necessary shareholder approval for a “substantial property transaction” by the company with the director or a person or company connected to them;
  3. Where a director has failed to make it clear to a party they are dealing with that they are acting as a director of a limited company;
  4. Where the director has authorised payment of an illegal dividend;
  5. Where the director knew, or ought to have known, that their company was insolvent but continued to represent that the company would be able to pay its debts by continuing to sign up to new contracts etc.

In summary, while a limited company is a separate and distinct legal entity and will normally be solely responsible for the debts it incurs and the obligations which it enters into, directors may still find themselves personally liable for their actions or omissions in their capacity as a director.

If you are a director, or are considering becoming one and would like further information, please contact any of our corporate team on 01383 721621 or by email on:

Steven Wicks – saw@businesslaw.co.uk

Alan D Stalker WS – ads@businesslaw.co.uk

Malcolm B Holmes – mbh@businesslaw.co.uk

This blog is intended as a short note only of instances where directors may face personal liability. No responsibility can be accepted for any act (or omission) taken in reliance on this blog and specialist advice should be taken in every case. If you wish to know more about when directors may face personal liability or the duties and obligations of directors, please contact us.

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