When can a director be held personally liable in the UK?

What makes a director personally liable for company debts?

A director is usually not liable for a limited company's debts, but can become personally liable through a personal guarantee, an overdrawn director's loan account, wrongful or fraudulent trading, misfeasance, or an HMRC personal liability notice.

GOV.UK treats company debts as “debts taken on in the name of the company” (opens in a new tab). A limited company is a separate legal person. Its suppliers, its bank and HMRC are owed by the company, and when it fails they usually claim in its insolvency. The exceptions below are where the law, or something you signed, puts the debt on you.

• A personal guarantee. GOV.UK: you are responsible for any money owed by your company that has been personally guaranteed by you (opens in a new tab). See personal guarantees after a company fails.
• Wrongful trading. In an insolvent liquidation the court can order a director to contribute if they knew or ought to have concluded (opens in a new tab) there was no reasonable prospect of avoiding it. Only the liquidator, or an administrator, can bring the claim.
• Fraudulent trading. Anyone knowingly party to running the business with intent to defraud creditors (opens in a new tab) can be ordered to contribute.
• Misfeasance. A director who misapplied or retained company money (opens in a new tab) or broke their duties can be ordered to repay it or compensate the company.
• HMRC notices. HMRC can make a director liable for unpaid National Insurance where the failure appears to be attributable to fraud or neglect (opens in a new tab), and can issue joint and several liability notices (opens in a new tab) in tax avoidance, evasion and repeated insolvency cases.
• Disqualification and company names. A director who acts while disqualified can be personally liable for company debts (opens in a new tab), and so can someone who reuses a prohibited company name (opens in a new tab).

What if I cannot repay an overdrawn director's loan account?

An overdrawn director's loan account is money you owe the company, so a liquidator can demand it and sue to recover it, and if you cannot pay, an IVA or bankruptcy may deal with the claim.

The Insolvency Service says the money “still belongs to the company and has to be paid back, even following insolvency” (opens in a new tab), and that a liquidator can take legal action to collect it for the company's creditors.

The same fact sheet warns that if you cannot afford to repay this money, you may be at risk of bankruptcy. At that point the loan account is a personal debt problem, sitting with any guarantee you signed and your household borrowing.

It can be dealt with in an IVA or in bankruptcy, like your other personal debts. In an IVA the liquidator is one of your creditors and votes on the proposal. Because an IVA needs the support of three quarters or more, by value, of the creditors who vote, a large loan account balance can mean the liquidator's vote decides it.

For the company side, see how a liquidator treats an overdrawn director's loan account. NTF Corporate Solutions Limited is part of the NTF group and run by the same two practitioners, so the group benefits from any work it takes on.

What personal options does a director have?

A director facing personal liability has the same formal options as anyone with personal debts: an Individual Voluntary Arrangement, bankruptcy, or a debt relief order if your debts, income and property are within its limits. The choice weighs heavily for a director because while you are bankrupt you cannot act as a company director without the court's permission (opens in a new tab), and a debt relief order stops you acting as a director of a company (opens in a new tab) while it lasts.

In an IVA you pay what you can afford to your creditors over an agreed period. It starts if three quarters or more, by value, of the creditors who vote agree, it then binds every creditor entitled to vote (opens in a new tab), and GOV.UK says it can give you more control of your assets than bankruptcy. It can also be cancelled if you miss repayments, and fees apply.

Bankruptcy usually ends one year after it starts (opens in a new tab). A guarantee liability counts as a bankruptcy debt even before the lender calls it in, because the Act includes debts that are “certain or contingent” (opens in a new tab). Your assets are dealt with by a trustee, and some debts, such as those from fraud, survive discharge.

Neither option suits everyone, both may affect your credit rating, and there may be informal ways to deal with the debts that fit you better. We explain each option before you decide anything.

Where can I find help for the company itself?

Help for the company itself comes through company insolvency procedures, such as liquidation or administration, which our group handles through NTF Corporate Solutions, run by the same two licensed insolvency practitioners. NTF Corporate Solutions Limited is part of the NTF group and run by the same two practitioners, so the group benefits from any work it takes on.

Its guides cover wrongful trading claims against directors, director disqualification and redundancy pay for company directors.

This site covers the personal side: what you may owe yourself, and what an IVA or bankruptcy would mean for you.