How to avoid personal liability – a guide for company directors

28 September, 2018

How to avoid personal liability – a guide for company directors


Words - Liability risk etc


Limited liability in a company context means limited liability for shareholders but not for directors.


Directors can have a number of different potential legal liabilities arising from their position as agent of the company, trustee of its assets, employee or professional adviser.


As a result of this directors need to be aware of their duties and responsibilities and ensure that they are properly discharged.


In broad summary, the essence of a director’s duty is to act bona fide in the interests of the company and use any powers for the purposes which they were conferred. 


These duties are generally owed to the company itself, not individual shareholders or creditors, but the situation changes when a company becomes insolvent.


The main duties are contained in the Companies Act 2006 and in the Insolvency Act 1986.  Our Guidance Note – Directors’ Duties summarises these duties and gives guidance to directors whose company is insolvent or likely to become so.


However, there are numerous additional risks for directors arising both from other statutes and also under the common law.