Can I Pursue the Director of a Building Company Directly?

When a building company fails to pay or carry out defective works, and the corporate structure appears to shield the director’s personal assets, the question of whether you can recover directly from the director is critical.

Piercing the corporate veil is one option. However, this has a high bar. Alternatives to access personal assets include wrongful trading, breach of certain statutory duties, and fraud.

We act for individuals and companies in England and Wales involved with building disputes where a construction company won’t pay or is insolvent. There may still be options for recovery. Contact our specialist solicitors for advice. Our construction litigation team have decades of experience acting in similar matters to yours, and we are happy to help.

When Can a Building Company Director Be Held Personally Liable?

A director of a limited liability construction company enjoys protection provided by this legal structure. However, there are still situations where a director may be held personally liable, allowing recovery against personal assets despite the corporate veil. Those situations include:

• Breach of certain statutory duties. The Companies Act 2006 sets out specific duties every director must adhere to. Significant breaches can give rise to personal liability.
• Wrongful trading. If a director continued to trade and incur liabilities when they knew, or reasonably should have known, that the company was unlikely to avoid insolvency, they may be held personally liable for debts incurred during that period.
• Misrepresentation or fraud. Where a director negligently or intentionally provides false information to shareholders, lenders, or regulators, personal liability can follow.
• Personal guarantees. If a director has signed a personal guarantee for a financial transaction such as a company loan, they become personally responsible for repaying that debt if the company cannot.

Why Limited Liability Usually Protects Directors

In English law, a limited liability company is a separate legal entity; it exists independently

of its directors and owners. This legal principle is known as corporate personhood.

At incorporation, the company exists separately from the people who manage it. Corporate personhood enables a company to enter into contracts, own property, and be a participant in legal actions in court.

This legal division, known as the corporate veil, protects company directors and shareholders from the company’s obligations and debts, hence the moniker, a limited liability company. 

Directors are not generally personally liable if they fulfil their statutory duties under the Companies Act 2006, and act within the company’s powers. This distinction exists to encourage business growth, entrepreneurship, and sensible risk-taking, encouraging startups and general economic activity.

If the company collapses, only its remaining assets can be used to pay creditors; the

directors and owners’ personal property and money cannot be touched.

However, limited liability isn’t a blanket protection. The law doesn’t allow directors to act

negligently or fraudulently or breach certain statutory obligations. Breaching statutory duties can lead to personal liability with recovery against the director’s own assets.

Can the Court Pierce the Corporate Veil?

The corporate veil doesn’t offer total protection. The court can pierce the corporate veil in cases of fraud, serious misconduct, or a failure to maintain separation between corporate and personal affairs and assets.

A court may pierce the corporate veil if a company has been created solely for the

purposes of illegal activity such as money laundering, or is a sham to disguise

ownership, for instance, a vehicle for tax evasion.

Fraudulent or wrongful trading or breaching directors’ duties may lead the court to pierce

the corporate veil supported by legislation which allows the court to hold directors personally liable.

The Companies Act 2006 contains specific provisions which give the court power to make

company directors personally liable and impose penalties including director disqualification or injunctive relief.

The Insolvency Act 1986 offers protection for creditors with the offences of wrongful trading

and fraudulent trading.

The court may consider several factors when deciding whether to pierce the corporate veil;

• Control,
• Director intent,
• Improper conduct,
• and whether there are any other remedies available.

However, piercing the corporate veil may not be the answer to all your problems; this legal mechanism is only rarely used. It’s limited in its application and only used in

specific and narrow circumstances.

When a Director May Be Personally Liable for Wrongful Trading 

Wrongful trading is a failure of directors to put the interest of the company’s creditors first when trading conditions are difficult.

Engaging in behaviour which makes the financial position of the company worse, like

borrowing more money or making reckless financial decisions, is a breach of directors’

specific responsibilities to protect creditors’ interests.

The test is whether a director should have known, or reasonably known, that the company

was unable to meet its financial obligations.

Wrongful trading can result in a director being held personally liable for debts incurred

during the wrongful trading period.

Claims Based on Breach of Directors’ Duties and Misfeasance

The Companies Act 2006 contains a raft of regulations which control director behaviour

and which directors must adhere to.

These include using reasonable care, diligence and skill in company operations, avoiding conflicts of interest, and promoting the success of the company for its members’ benefit.

Breaching these duties may provide grounds for a claim.

Misfeasance is the improper performance of a lawful duty or act. It can include breaching statutory duties, misusing company funds, or any improper conduct that causes loss to the company. Unlike wrongful trading, which focuses on the point at which a director should have stopped trading, misfeasance can cover conduct across the entire trading history of the company. It’s a broader provision that allows a liquidator to recoup losses caused by a director’s failure to meet the required standard of care.

Misfeasance is not a criminal act. It covers misconduct which may have taken place during

trading or when a company is in liquidation.

The liquidator may bring proceedings against former directors to recover losses caused by mismanagement or misconduct, key to protecting creditors. A creditor can also bring a misfeasance claim although in practice, most claims are brought by liquidators.

Section 212 of the Insolvency Act 1986 allows the court to investigate whether a director has acted improperly and breached their fiduciary duties, or misapplied company money.

The court can order a director to restore assets, repay sums or compensation.

Did the Director Give a Personal Guarantee? 

A personal guarantee (PG) is a legally binding agreement often required by lenders and suppliers to reduce risk, typically if the company has a limited or no trading history.

A PG is an obvious way that a director may become personally liable for the debts of a

company. It may be unsecured or secured so backed by a charge on the director’s

property.

A personal guarantee may only become active if the company cannot repay the debt or becomes insolvent. It will still exist despite the company’s liquidation or dissolution so creditors can pursue the director for the guaranteed sum.

Other Situations Where Personal Liability Can Arise

Fraudulent trading means a director has been deliberately dishonest and deceived

creditors, usually to conceal the real state of a company’s finances.

Fraudulent trading is an offence under Section 213 of the Insolvency Act 1986 and is distinct

from wrongful trading separated by the presence of a deliberate intent to defraud creditors.

Examples of fraudulent trading include;

• Falsifying records to present a more favourable picture to creditors or investors,
• Misleading creditors or investors with false assurances to procure goods, services or loans, 
• Or incurring debts with no intention of repayment.

Fraudulent trading creates two distinct routes to liability.

1. The liquidator can bring a civil claim under Section 213 of the Insolvency Act 1986. This is a civil remedy, the standard of proof is balance of probabilities (i.e. over 50%). 
2. Separately, fraudulent trading is also a criminal offence under Section 993 of the Companies Act 2006, prosecuted by the Insolvency Service or Serious Fraud Office to the criminal standard of beyond reasonable doubt.

As a creditor, it’s the civil route through the liquidator that’s most directly relevant to recovery.

Directors can be held personally liable for misrepresentation which involves providing

false information to investors, shareholders, lenders, or regulators. This includes overstating figures, concealing losses or just misleading people.

Misrepresentation can be negligent or fraudulent. Fraudulent misrepresentation may result in

civil or criminal liability under the Fraud Act 2006.

Directors can also be held personally liable for their involvement in wrongful acts. Aside

from breach of director duties, wrongful and fraudulent trading, directors can face personal liability if they’re involved in serious health and safety breaches in their company.

How to Assess Whether a Personal Claim Is Worth Pursuing 

Pursuing a personal claim against a director is far from straightforward. It involves specialist support from experienced advisers. You must have strong evidence to support your case. However, even a well-evidenced claim carries no guaranteed outcome since courts have discretion, and the strength of a case on paper doesn’t always translate to recovery in practice.

You’ll also need to establish that the director genuinely has personal assets which you can use to satisfy a debt. 

Advice from specialist solicitors is essential to evaluate your potential claim and establish what potential routes are available for recovery. 

Funding a Claim Against a Director

It’s vital to cost the potential route for recovery against a director. Even if you have strong

legal grounds, litigation can be lengthy and expensive. It may be better to try and achieve success with specialist negotiation or via Alternative Dispute Resolution (ADR) first, which is often quicker and cheaper.

We offer No Win No Fee funding on qualifying commercial, property, and construction disputes. Subject to case assessment and our funding criteria. Available on qualifying disputes typically valued over £10,000 with strong prospects of success. Availability of this funding is based on a case-by-case analysis.

Frequently Asked Questions

Can I sue a building company director if the company has gone into liquidation? 

The ability to sue will depend on the grounds surrounding the liquidation and the behaviour of the company director. Despite insolvency, you may still be able to pursue a claim for personal liability against the director if there’s evidence of wrongful or fraudulent trading or the director has given you a personal guarantee.

What evidence is needed to pursue a director personally? 

You’ll need specific legal grounds to pursue a director personally. There must be evidence

that the director has breached their statutory duties or committed a fraudulent act. Specialist solicitors will evaluate a case against potential routes of claim and confirm whether there’s substantive evidence to support legal action.

Can a director be liable if they transferred assets out of the company? 

A director can be liable if they transfer assets out of the business ahead of a rapidly

deteriorating company position. The court can ask a director to personally account for the value of the assets at the point of transfer even if later actions reduce their value or have rendered them worthless.

Is it easier to claim under a personal guarantee than pierce the corporate veil? 

It’s generally much easier to claim under a personal guarantee. A claimant can enforce this themselves based on breach of contract. Piercing the corporate veil is a legal remedy which is only available to the court and requires evidence of misconduct or breach of statutory duties. A personal guarantee limits director exposure to the agreed amount. However, piercing the corporate veil exposes all their personal assets.

Need Advice? Contact Helix Law.

Non-payment of a debt causes financial strain on your business or exposes individuals to cash flow problems with the worry that the money will never be reclaimed. It’s essential to

identify the right recovery route from the outset.

We undertake a meticulous review of company records, financial history, minutes of board meetings, and any insolvency reports to uncover breaches of statutory duties, or instances of wrongful or fraudulent trading. We’ll find the most strategic route to recovery at the outset to avoid wasting time and money. We support your personal and commercial objectives with practical and cost-effective advice.

We’re a team of specialist litigation solicitors with experience in the construction sector. We’ll evaluate the evidence and provide different options explained to you in clear terms that make sense. No Win No Fee funding may be available on qualifying commercial, property, or construction disputes. Subject to case assessment and our funding criteria. Available on disputes typically valued over £10,000 with strong prospects of success.

If you’re faced with an unpaid invoice or defective works, a construction company heading into insolvency, and a director whose personal assets appear intact despite the company’s insolvency, speak to one of our specialist litigation solicitors today. Our team act nationally and would love to help you.