Are Directors Personally Liable For Company Debts?

Directors are not usually personally liable for company debts; this is one of the advantages of limited liability companies, which protect directors from personal exposure. However, there are certain circumstances where this premise does not apply.

One such exception is a director’s outstanding loan account, where a director owes money to the company. This debt could be via a loan or when a director continues to draw dividends from the company when it is not in profit — becoming a loan to a director by default. This scenario is typically not a problem if the company is trading and solvent, but it can become an issue if it is liquidated.

Company directors are also liable for personal guarantees given to third parties such as banks. A personal guarantee is common for small and medium-sized companies looking to secure credit for their business.

Banks usually require a personal guarantee before offering an overdraft facility or loan. If the company goes into liquidation, then a director will become personally liable for any personal guarantees they have given.