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Can a company going into liquidation affect the director personally?

17 November 2015

A limited company is its own legal entity. Therefore, if a company goes into liquidation, the debt involved belongs to the company, not the directors. 

It is also a myth that directors can never be company directors again. Many successful directors have had previous failed businesses for a number of different reasons but are now running profitable and viable companies. 

Directors Duties

Directors can be made personally liable, however, if they have not acted in the creditors’ best interests or have been involved in fraudulent activity. One example could be if the company continues to take credit even though the director knows there is no way to repay this. 

It is the director’s duty to act properly when a company is insolvent or there is the risk of ‘wrongful trading’ as defined in the Insolvency Act 1986. 

When a company goes into liquidation, the Insolvency Practitioner or Official Receiver will investigate the director’s actions to ensure all procedures have been correctly followed. If there has been any wrongdoing, this will be looked into and a case could be made against the directors. 

It is crucial to seek advice if you’re running an insolvent business and you’re unsure how to proceed. There may be a more suitable solution than liquidation. You can call us on 0800 9700539 to talk through your options.