Can directors be held liable for debts after closure of an insolvent company?
Personal liability for company debts can happen, however, if severe director misconduct or wrongful trading can be proven. When an insolvent company is closed via liquidation, an investigation will be conducted into the actions of its directors leading up to the company becoming insolvent. If directors can be seen to be directly responsible for the company’s insolvency, they may be held personally liable for some or all of the company’s debt. This, however, is extremely rare and most insolvent company closure cases end with no ongoing director liability.
Understanding director duties when a company is insolvent
While many companies will find themselves insolvent at some point, this does not mean the situation should not be taken seriously. Once a company is knowingly insolvent, its directors have a number of legal responsibilities which they must adhere to. One of these is to act in the best interests of creditors, rather than the interests of the company and its shareholders.
It is therefore not an option for a company to continue trading on when you know the company is insolvent. Continuing to increase liabilities or decrease assets is a breach of your duties as the director of a limited company, and you could face serious repercussions if action is not taken to manage the situation.
Taking the advice of a licensed insolvency practitioner at the first signs of insolvency demonstrates your desire to priorities the interests of creditors and adhere to your legal obligations in this matter.