Directors of limited companies - take note!

27 November 2012

Celia Worthington of Worthingtons Solicitors Belfast advises Directors of Limited Companies of their liabilities when their Company is in financial difficulties

Generally as a director of a limited liability company you would not be held personally liable for the company’s debts unless you have personally guaranteed the debts or you have allowed your company to trade at a time when you knew or ought to have known that the company could not pay its debts.

This latter scenario is known as “wrongful trading”. Wrongful trading occurs when a company finds itself in financial difficulties and carries on trading to the detriment of its creditors. Accordingly if your company is in financial difficulties and there is no reasonable prospect of the company being able to trade out of these difficulties then as a director you must give proper and immediate consideration to whether the company has reached the point of no return and cease trading.

If you have other board members who don’t necessarily agree with your position merely resigning as a director does not necessarily free you from obligations if the directors are subsequently found guilty of wrongful trading. In such circumstances if the board won’t take the necessary steps that you are proposing, you should notify the board of your concern in writing and recommend to the board that the company take immediate professional financial advice concerning the solvency of the company.

There are other scenarios where a director could be held personally liable for company debts such as where a director is found guilty of falsifying the company books, has taken monies out of the company at the expense of company creditors such as taking a salary to pay personal creditors rather than paying the company creditors or is found guilty of having made deceitful statements in the process of obtaining credit.

However, in the absence of having given any personal guarantees, if you have acted in a responsible manner, taken reasonable steps to minimise the loss to your creditors and kept proper records and management information for your business it is unlikely that, as a director, you will be personally liable for your company’s debts.

Celia Worthington is a Senior Partner with Worthingtons Solicitors and is head of the Commercial property team.  Celia specialises in commercial property, banking, telecoms and corporate and commercial law. She advises a number of UK wide corporate clients and well known local charities and is currently Chairperson of Abbeyfield (NI) a local housing association.

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