Liquidation Impact on Directors: Personal Liabilities and Disqualifications

 If a business falls on hard times and needs to go into liquidation, directors are usually curious about whether or not they are going to be liable for any of the company’s ongoing debts, and also what their general liabilities are towards the company. This is a fair question and will discuss Liquidation’s Impact on Directors throughout the below article.

Protection from Debt

As a general rule, directors of limited companies are usually protected from any kind of personal liability for the debts of the company. The clue is in the name of a limited liability company, which essentially means the company is its own legal entity, so its debts are its own and not that of the director.

One of the main reasons that people start a limited company, even if they are a sole trader or in a partnership for the time being is because they can limit their exposure to business debt by doing so. They are incorporated as distinct legal entities and as such, the court views this as an entity which is separate from the directors who are in charge of the business. More often than not, this is known as the corporate veil.

That being said, it is worth noting that there are some exceptions which would make it so that directors become personally liable for a company’s debts. This usually occurs in situations where creditors need protection from negligent and dishonest conduct by the directors of a company which finds itself in difficult economic times.

If a director is going to be personally responsible for the debt of a business then this is linked in whole to their actions and behaviour. If the company is insolvent then directors need to act in a way which protects creditors and limits loss as much as possible, if they don’t do this then they could become responsible for the creditor’s losses.

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