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When is a company director personally liable?

Setting up a limited company gives company directors some protection, but there’s still a risk of being held personally liable. Although policies such as management liability or directors’ and officers’ insurance can protect you, it's important to understand what your liabilities are as a company director. 

27.08.26

By Kate Walker

Liabilities of directors

In this article, we explore the responsibilities of a company director and the circumstances where you can be held personally liable for legal issues. 

The “corporate veil” 

A limited company is a legal entity that exists entirely separately from its owners, so if company directors resign or retire, the business would still exist. This business structure also limits liability, so typically, directors are not personally responsible for debts or financial losses.  

However, that limited liability only extends so far, and there are some circumstances where directors can be held personally liable, for example: 

  • Consenting to an illegal activity or causing illegal activity because of neglect 

  • Behaving fraudulently 

  • Signing personal guarantees 

  • Breaching laws (such as company or general trading laws) 

What are the seven statutory duties of a director? 

As well as being responsible for keeping records and submitting accounts to Companies House each year, the Companies Act 2006 sets out key director duties, which are: 

To act within their powers and in accordance with the company’s constitution. 

  1. To promote the success of the company. 

  1. To exercise independent judgement. 

  1. To exercise reasonable care, skill, and diligence. 

  1. To avoid conflicts of interest. 

  1. Not to accept benefits from third parties. 

  1. To declare any interest in proposed transactions or arrangements.  

You can also find more information about responsibilities at: GOV.UK, being a company director.  

Can personal assets be seized for company debts? 

In some circumstances, your personal assets can be used to cover the cost of outstanding company debts, including: 

  • Personal guarantees (PG) – signing a PG is a legally binding agreement that states you will cover a debt if the company can’t.  

  • Overdrawn director’s loan account – if you’ve borrowed money from the business and the account is overdrawn, your personal assets can be used to cover the outstanding amount.  

  • Tax evasion – HMRC can claim assets for any unpaid PAYE or National Insurance contributions.  

Other areas of personal director liability 

As well as being liable for some company debts, you can face criminal charges, financial penalties, and be disqualified from being a company director if you are accused and found guilty of: 

Wrongful and fraudulent trading  

Fraudulent trading involves carrying on business with intent to defraud creditors or for another fraudulent purpose. If proven, it can lead to serious civil and criminal consequences, including a custodial sentence. 

Wrongful trading is different, as it does not require dishonesty to be proven. A director can be ordered to contribute personally to the company’s assets if, before insolvent liquidation or administration, they knew or ought to have concluded that there was no reasonable prospect of avoiding that outcome, and they failed to take every step they ought to have taken to minimise potential losses to creditors. Full guidance can be found at: GOV.UK, consequences for directors. 

Health & safety and corporate manslaughter  

The Health and Safety Executive expects senior leaders to monitor and manage workplace health and safety effectively. A failure to do so can lead to prosecution, unlimited fines, and director disqualification. 

Corporate manslaughter is an offence committed by an organisation where the way its activities are managed or organised causes a person’s death and amounts to a gross breach of a relevant duty of care. Individual directors and senior managers may also face prosecution for gross negligence manslaughter where the legal test is met. The maximum sentence for gross negligence manslaughter is life imprisonment, although sentencing guidelines set an offence range of one to 18 years’ custody. 

Data protection breaches  

If directors intentionally fail to comply with data protection obligations, they can be held personally responsible in some circumstances. Businesses and their directors may also face enforcement action for nuisance marketing, including unsolicited emails, texts, or calls. Following changes to the Privacy and Electronic Communications Regulations 2003 (PECR) penalties, the maximum fine for certain direct marketing breaches can now be up to £17.5 million or 4% of total annual worldwide turnover, whichever is higher. 

It’s recommended that businesses storing or processing sensitive customer data consider a standalone cyber insurance policy. While this won’t protect against intentional non-compliance with regulations or ensure fines are covered, it can help protect against the costs associated with data breaches and cyber attacks; a very real threat to all businesses. 

what are the liabilities of a company director

Breaching statutory duties 

Directors are expected to uphold their statutory duties. Activities that breach these duties can lead to personal liability, for example:   

  • Acting beyond company authority – exceeding the authority you have to the detriment of the business.  

  • Misrepresentation – for example, if a third party suffers financial losses because you’ve misled them, you may be expected to compensate them. If you’ve provided professional advice in this instance, professional indemnity insurance can help cover any associated legal costs.  

  • Bribery and corruption – the Bribery Act 2010 was extended to include all private sector transactions. If a company is found to be offering or receiving bribes, you can be held jointly liable with the company if it can be shown that you consented or connived in the bribery.  

  • Environmental breaches – you can be held personally liable if you commit or allow someone else to commit an offence that breaches environmental regulations.  

  • Breach of Intellectual Property Rights – if you allow the infringement of a third party’s intellectual property rights, you can be personally held liable. 

  • Anti-competitive behaviour or price fixing – you can be prosecuted if you’re believed to have allowed the company to enter into cartel agreements involving price-fixing, limiting production or supply, or influencing bidding processes. 

  • Mandatory trading disclosures – businesses must make their true corporate identity clear (such as their registered name). You can be fined if the company fails to comply with these rules or make proper disclosures under The Companies (Trading Disclosures) Regulations 2008. 

  • Acting while disqualified – if you act in the name of management while you’re disqualified, you can be held personally liable. You can also be held liable if you act on the instructions of someone else who is disqualified. 

Who holds the power, directors or shareholders? 

Shareholders own the business, so in that sense, they hold powers of ownership. Directors are responsible for the day-to-day running of the business.  

If shareholders believe that a director has caused the business to fail, they can take derivative action and make a claim for wrongdoing. Typically, this happens when it’s felt that directors have been negligent, breached their statutory duties, or misused company funds.  

Can a director walk away from a company? 

Directors can resign from their position, but this won’t remove any personal liability; you’ll still be accountable for actions taken while a director, whether you retain company directorship or not (known as post-resignation liability).  

How D&O insurance protects your personal assets 

Directors’ and officers’ (D&O) insurance covers compensation costs and legal fees if company directors or key officers (managers) are accused of wrongdoing and personally sued or investigated. These policies exist to protect directors and differ from commercial policies that cover your business’ liability.  

Cover levels are typically linked to business turnover and any previous claims. As with all insurance policies, terms, conditions, and exclusions apply. D&O policies will not usually cover deliberate, dishonest, fraudulent, or intentionally unlawful conduct once established. 

Tailored insurance to protect your personal assets

Directors face numerous challenges, and despite carrying out your legal duties diligently, there’s still a risk of falling foul of the law. The nature of a directorship means that you can also face liability if someone you employ makes a mistake.  

If you head up a larger organisation with directors, senior management, and a large number of employees, you may also want to consider management liability insurance. Where D&O insurance covers individual directors, management liability cover combines: 

Both D&O and management liability insurance are tailored to reflect the types of risks you face within your industry. The policy that’s right for you and your business will depend on your circumstances.  

To explore your options in more detail, our experts are on hand to help.

Speak to us:  01603 218000

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