Corporate Law

Wrongful trading under section 214 of the Insolvency Act 1986 does not require dishonest intent — it catches directors who continued trading when they knew or ought to have known there was no reasonable prospect of avoiding insolvent liquidation. Fraudulent trading under section 213 requires deliberate intent to defraud creditors and carries criminal liability of up to ten years' imprisonment, as well as civil liability. Wrongful trading is far more commonly pursued because it requires no proof of dishonesty — only a failure to take every step to minimise creditor losses once the trigger point was reached.

A director's loan account (DLA) records the running balance of money a director has borrowed from their company or paid in. When a director draws more from the company than they have contributed (as salary, dividends, or loans properly repaid), the DLA is overdrawn. In the event of insolvency, an overdrawn DLA is treated as a company asset that the liquidator will pursue from the director personally. Where the drawings were made during a period of financial deterioration, the liquidator may also investigate whether they constitute misfeasance or preferences.

A Personal Liability Notice (PLN) is a statutory notice issued by HMRC under section 121C of the Social Security Administration Act 1992, transferring unpaid National Insurance liabilities directly onto a named director personally. HMRC can issue a PLN where the company's failure to pay was attributable to the fraud or neglect of the named director. A PLN can be challenged — on grounds including that the statutory time limit for issue has been missed, that the "fraud or neglect" standard has not been properly established, or that HMRC's calculation is incorrect. Do not respond to a PLN without taking legal advice first.

Director disqualification under the Company Directors Disqualification Act 1986 is an order preventing a person from acting as a company director (or being involved in the promotion, formation or management of a company) for a specified period. Disqualification periods range from two to fifteen years, grouped into three bands: two to five years (least serious); six to ten years (middle band, most commonly applied for wrongful trading); and eleven to fifteen years (most serious, typically reserved for fraudulent conduct). A disqualified director who continues to act as director commits a criminal offence.

Take professional advice immediately — from both a solicitor and an insolvency practitioner. Do not wait. The trigger point for wrongful trading is typically many months before a company formally enters liquidation, and the period of trading after the trigger point is exactly what a liquidator will investigate. Early advice preserves the most options: formal insolvency processes (administration, CVA), a sale of the business, restructuring, or a managed wind-down. Options narrow as time passes and the company's position deteriorates.

In most cases, no — a commercial lease is a contract with the company, and the landlord's rights are against the company only. The exception is where the director has signed a personal guarantee of the company's obligations under the lease. Personal guarantees of commercial leases are common for early-stage businesses or businesses with limited trading history. If you signed a personal guarantee at lease inception, you remain liable under that guarantee even if the company subsequently grows, unless the guarantee has been formally released by the landlord.

Misfeasance covers misapplication of company assets — using company money for personal purposes, making payments without proper authority, or causing the company to enter transactions that benefit the director personally at the company's expense. A liquidator can bring misfeasance proceedings under section 212 of the Insolvency Act 1986 seeking compensation equivalent to the loss caused to the company. Misfeasance can also form the basis of a director disqualification application.

A Joint and Several Liability Notice (JLN) is a statutory notice introduced by the Finance Act 2020, issued by HMRC against directors involved in a pattern of repeated company failures — commonly called "phoenixism." Where a JLN is issued, the named director becomes jointly and severally liable for a new business entity's tax debt alongside that entity. JLNs are most commonly used where HMRC identifies the same individuals incorporating successive companies that each accumulate tax liabilities and then enter insolvency.

The most important steps are: regularly reviewing management accounts and cash flow forecasts so you understand the company's financial position in real time; documenting board decisions and the reasoning behind them in formal minutes; reviewing any personal guarantees you have signed and understanding their current scope; keeping the director's loan account in credit or correctly authorised; ensuring PAYE and NI are paid on time and in full; and taking professional advice at the first sign of serious financial difficulty — not when a problem has become critical.