Running a company in the UK comes with a level of responsibility that shouldn’t be taken lightly. Directors aren’t automatically shielded from the company’s legal problems just because it’s a separate legal entity. There are clear situations where director personal liability can arise, especially when certain legal duties are not followed or laws are broken.
Understanding Director Duties
Every director in the UK has legal obligations under the Companies Act 2006. These duties are in place to protect the interests of the company, its shareholders, and creditors. If a director fails to meet these expectations, they may face director personal liability.
A breach of directors’ duties includes failing to act within the company’s constitution, not promoting the success of the business, allowing conflicts of interest, or showing neglect in the company’s affairs. These are not just formalities — they are enforceable. If a company suffers a loss due to any of these breaches, the director involved can be held personally responsible.
Wrongful Trading During Insolvency
A key area where directors must be especially cautious is during financial trouble. The Insolvency Act 1986 explains that wrongful trading happens when directors keep the business running even when they know there’s no chance of avoiding insolvency. If they don’t take proper action — such as reducing harm to creditors — they may be personally liable for the company’s debts.
This is different from poor management or making a bad call. Wrongful trading focuses on what a reasonable director should have done once they realised the company was no longer viable.
When Fraud is Involved
If a company is found to be involved in fraudulent trading, the consequences are even more serious. This applies if the company was run with the intention to cheat creditors or deceive others. Any director who knowingly played a part in the fraud can be personally held to account. It’s a criminal matter, and the penalties can include personal responsibility for the company’s debts — and possibly a ban from acting as a director in the future.
Health, Safety, and Environmental Offences
A director can also face personal legal action if there are serious health and safety breaches within the company, especially if the breach happened with their approval or because they ignored risks. The same applies to environmental offences. If a company pollutes or breaks environmental laws, and it’s due to a director’s neglect or consent, director personal liability can apply.
Tax and Financial Guarantees
Directors who ignore their tax responsibilities also run the risk of being personally liable. This could happen if they fail to make PAYE payments or handle National Insurance duties properly. HMRC has the power to take action against directors directly.
In many cases, directors also sign personal guarantees — for example, to secure a business loan. The director will still be responsible for the debt if the company defaults. These types of guarantees fall outside typical company protections and are enforceable.
Final Thoughts
A company structure doesn’t offer complete protection from legal fallout. When there’s clear evidence of a breach of directors’ duties, wrongful trading, or other serious failings, directors can face director personal liability. It’s about following the law and acting with care, judgement, and integrity at all times.
Anyone serving as a company director should understand their legal responsibilities fully. Seeking proper advice early on can prevent major risks later down the line.
