What Directors Can Be Personally Liable For in the UK

Most directors incorporate for one reason: limited liability. The company owns its debts, not you. That protection is real, but it has clear limits, and directors tend to discover them at the worst possible moment. This is the overview: the main situations in which a UK director can be made personally responsible for what the company did.

The default position: limited liability

When you incorporate, the company becomes a separate legal entity. It can own property, enter contracts, borrow money and incur debts independently of its shareholders and directors. If it cannot pay, creditors pursue the company, not you. This principle of separate corporate personality was established in Salomon v Salomon & Co Ltd [1897] AC 22 and remains the foundation of UK company law.

When the corporate veil lifts

The protection is not unlimited. Statute and the courts have set out circumstances where directors face personal exposure. These are not obscure edge cases; they arise regularly in insolvency, HMRC enforcement and commercial disputes.

• Wrongful trading (s214 Insolvency Act 1986): letting the company keep incurring liabilities when you knew, or ought to have known, there was no reasonable prospect of avoiding insolvent liquidation. No dishonesty is required.
• Fraudulent trading (s213 IA 1986 civil, s993 Companies Act 2006 criminal): carrying on business with intent to defraud creditors. The criminal offence carries up to ten years' imprisonment.
• Personal guarantees: the most common route in practice. A guarantee you signed for an overdraft, lease, supplier credit or invoice finance can be enforced against you personally.
• Overdrawn director's loan account: in insolvency, an overdrawn DLA is a company asset and the liquidator will demand repayment.
• Unlawful dividends: dividends paid without sufficient distributable profits can be reclaimed from you personally.
• HMRC Personal Liability Notices (s121C Social Security Administration Act 1992) and Joint and Several Liability Notices (Finance Act 2020): unpaid tax and NIC transferred onto a named director.
• Misfeasance (s212 IA 1986): misapplying company assets or causing transactions that benefit you at the company's expense.

What to do next

If any of these feel close to home, the time to act is now, not once a liquidator or HMRC has made contact. Bonsai Law advises directors, founders and owner-managers on personal liability risk, directors' duties and insolvency exposure. Start the conversation and we will help you understand your exposure and how to reduce it. You may also want to read how to protect yourself as a director and whether your personal assets are at risk.