Can a director be held personally liable for company debt?
The knee-jerk response to the above is, “No, that is what limited liability means.” Indeed, the only obvious exceptions would be where a director has given a personal guarantee or, when a director is the named contracting party, which does happen occasionally, especially where leasehold property is concerned.
In a recent press release by the Insolvency Service two directors received custodial sentences and a Proceeds of Crime Receiver appointed to recover monies from the estate of both directors for the benefit of the company creditors. This should be considered as the worst-case scenario in terms of penalties for errant directors, but it should also be considered a warning to those who feel they are “Above the law”.
There is a worrying upward trend in directors acting in a manner where they believe they can beat the system and fall short of meeting their duties as required by the Companies Act. Both the Official Receiver and insolvency practitioners are being asked by creditors to investigate the conduct of directors and to seek restoration (compensation) by “Lifting the corporate veil” and demanding directors contribute towards the company losses. Some of the principal areas of focus include unlawful dividends, debt avoidance and adverse loan accounts, where a director has (what HMRC describe as) taken disguised remuneration.
What is probably more disturbing is the “Blame culture” as an increasing number of directors are seeking to point the finger of culpability toward their professional advisors by suggesting a defence of merely following independent advice. This is seeing advisors being caught up in litigation or demands to deliver up their client files, or both. It is a trend that advisors have probably noticed but what can be done to minimise the risk?
On 13 May PBC are holding a free to attend seminar at the Kettering Park Hotel where Gary Pettit and myself will be discussing the issues that are generally leading to personal liability and what professional advisors ought to consider. Should you be interested then please contact Lisa Parker on email@example.com in order to book one of the limited spaces available.