Are Directors personally liable for company debts?

If you have signed a Personal Guarantee…

Often directors are required to provide a personal guarantee as security for business loans. This is security at the end of the day and will be used as such to recover money owed, just like any other security e.g. Property or assets

Am I Liable?

If the terms of the loan agreement are broken, any previous repayment agreements become null and void. This means the guarantor(s) are liable for the full value of the liability.

Not only are all signatories liable, but repayment can also be requested at any time. If you do not have the cash reserves to satisfy the creditor’s demand this will result in serious repercussions.

In this case, the creditor can issue a statutory demand and make you bankrupt. Ultimately this could result in the repossession of your personal assets including your home and businesses.

Loan Sales

Recently we have seen an increase in the number of directors having their loans sold to third parties. The companies, sometimes called “Vulture funds” employ aggressive repossession techniques and are commercially-minded, making them harder to negotiate with.

If you haven’t signed a Personal Guarantee 

In this case, you are not automatically liable for the business’s debts however, there are some circumstances in which you may be. Especially as a result of recently introduced legislation:

Finance Act 2020 

Under Schedule 13 of this bill, HMRC can pursue directors of ‘Phoenix’ companies, i.e. companies that have been dissolved to shed liabilities and then re-established under a new name. Companies can be investigated in relation to:

  • Number of company Insolvencies
  • Non-payment cases

This legislation allows for the removal of the corporate ‘veil’ in such instances and will see HMRC issue joint and several liability notices to guilty directors, potentially leaving them liable for:

  • Unpaid tax liability in the new company
  • Any tax liability in Newco for 5 years, from the date of the Joint and Several Liability Notice
  • Any old company liabilities
Coronavirus (Ratings) and Director Disqualification (Dissolved Companies) Bill

This bill has recently been signed into law. Its retroactive nature means investigations can be carried out for companies dissolved up to 3 years ago. Its main purpose is to:

  • Prevent the dissolution of companies to avoid investigation into the directors
  • To prevent ‘pre-pack’ administration i.e. the dissolution of companies to shed liabilities and transfer assets to a new company
  • To prevent directors from using the company dissolution process as an alternative to formal insolvency proceedings

If you have/are planning to dissolve a limited company, you may find yourself under the microscope. If your conduct is found to be questionable, it could have dire consequences for you and your business.

Again, the corporate ‘veil’ can be lifted, leaving former directors liable for the company’s debts. This is especially likely if the company was a recipient of a CBILs/BBLs loan.

What do I do next?

Most importantly, there are always options therefore you don’t have to face the stress and uncertainty of being liable for repayments by yourself.

In addition to the above, Bell & Company, as pre-insolvency consultants, specialise in helping people like you.

As an example, we have numerous success stories helping clients who were being pursued aggressively by lenders and creditors start fresh.


For more information on personal liability in relation to business debt click here:

Or call our office on 0330 159 5820


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