Can a Director Be Personally Liable for Company Insolvency?

Reviewed by Richard Curtin: Senior Consultant Solicitor, Setfords Law, Published: 3rd August 2026, Last reviewed: 29th July 2026, Read time: 8 minutes

Directors aren’t normally personally responsible for their company’s debts. Limited liability exists precisely to draw a line between the company and the people who run it. But that protection isn’t absolute, and there are specific situations where a director can end up personally liable. Here’s what creates that risk, and how to protect your position.

Key takeaways

• Directors aren’t automatically liable for company debts. Personal liability arises only in specific, defined situations.
• The most common route is wrongful trading: continuing to trade once you knew, or ought to have known, the company couldn’t avoid insolvent liquidation or administration.
• Wrongful trading is a civil claim, not a criminal one. Fraudulent trading, which requires proof of dishonesty, is the criminal equivalent.
• Personal guarantees, given voluntarily to lenders or landlords, are a separate and common source of personal liability.
• Good records, honest financial monitoring, and early advice are the strongest protection a director has.

Directors are not normally personally responsible for company debts. That’s the whole point of operating through a limited company. But if a director’s conduct falls below what’s expected, there are situations where they can become personally liable, most commonly for wrongful trading under the Insolvency Act 1986.

The threshold question in almost every case is what the director “knew or ought to have known” about the company’s financial position, and what they did once they knew it. Directors who act early, take advice, and keep clear records are in a markedly different position from those who kept trading and hoped things would improve.

Key figures

Section 214 · 15 years · 75%

Section 214 of the Insolvency Act 1986 is the main basis for a wrongful trading claim against a director in liquidation, with section 246ZB doing the same job in administration. Where a director’s conduct falls short, they can be disqualified for up to 15 years under the Company Directors Disqualification Act 1986.

A Company Voluntary Arrangement (CVA) is sometimes proposed as an alternative to continued trading. Where that happens, creditors representing at least 75% of the voting debt value must approve it. It must also not be opposed by more than 50% of unconnected creditors, meaning those with no personal or financial ties to the company.

(These are the headline figures most often quoted for this area of law. Confirm current thresholds and penalties with your insolvency solicitor. They can be updated by later legislation or case law.)

When personal liability can arise

Limited liability protects a director’s personal assets from the company’s debts in ordinary trading. It stops protecting them when their conduct crosses into one of these areas:

• Wrongful trading. Under section 214 of the Insolvency Act 1986, a director can be personally liable for continuing to trade past a certain point. That point is when they knew, or ought to have concluded, there was no reasonable prospect of avoiding insolvent liquidation. Liability also requires that they failed to take every step to minimise the loss to creditors from then on. The equivalent provision for administration is section 246ZB.
• Fraudulent trading. A more serious, criminal offence under section 213 of the Insolvency Act 1986, which requires proof that the business was carried on with intent to defraud creditors. This carries a materially higher evidential bar than wrongful trading, because dishonesty has to be proved.
• Misfeasance and breach of duty. Under section 212 of the Insolvency Act 1986, a director can be held liable for breaching their duties to the company, for example misapplying company money or property. Courts have recently confirmed this can extend to continuing to trade in breach of duty, sometimes called misfeasance trading. The point in time when insolvency is treated as having started can be earlier here than for a wrongful trading claim.
• Personal guarantees. Many lenders and landlords ask directors to personally guarantee a loan, lease or overdraft. If the company can’t pay, the guarantee lets the creditor pursue the director directly for that specific debt. This has nothing to do with wrongful conduct. It’s simply the terms the director agreed to.
• Overdrawn director’s loan accounts. If a director has taken money out of the company that hasn’t been repaid or properly accounted for, a liquidator can pursue repayment of that amount personally. This applies regardless of any wrongdoing.
• Preference and undervalue transactions. A director might cause the company to pay off a connected creditor (such as a fellow director or an associated business) ahead of others, shortly before insolvency. They might also cause it to sell an asset for less than it’s worth. In either case, a liquidator can apply to unwind the transaction and may seek repayment from the director.

What “wrongful trading” means

Wrongful trading is the claim liquidators and administrators bring most often. It’s worth understanding in more detail, because most directors caught by it weren’t being dishonest. They were being optimistic, hoping the next contract or the next month would turn things around.

To succeed, a liquidator or administrator has to show three things:

1. The company went into insolvent liquidation or insolvent administration.
   
2. At some point before that, the director knew, or ought to have concluded, there was no reasonable prospect of avoiding it.
   
3. From that point, the director failed to take every step a reasonably diligent director should have taken to minimise the loss to creditors.

Only a liquidator or administrator can bring this claim, not creditors directly, and only once the company has entered a formal insolvency process. The court has wide discretion in setting any contribution a director is ordered to pay. Where more than one director is involved, it can apportion liability between them, or make it joint and several. That means each director can be held responsible for the whole amount rather than only their own share.

What is a wrongful trading claim? A civil claim, brought by a liquidator or administrator, seeking a financial contribution from a director who kept trading after the point they should have known insolvency couldn’t be avoided.

The most common defence is showing that the director took every reasonable step to minimise losses once the position became clear: stopping new borrowing, preserving assets, and taking professional advice. Directors who took advice and followed it are generally in a stronger position than those who didn’t. But the court will look closely at whether the directors gave their advisers a full, honest picture of the accounts. It will also look at whether the advice addressed the actual question of whether to keep trading. And it will look at whether the board genuinely engaged with it, rather than treating it as a box-ticking exercise.

How the liability routes compare

All three routes can arise from the same set of facts, and a liquidator will often consider more than one. The key practical distinction is that wrongful trading and misfeasance don’t require dishonesty, while fraudulent trading does. That difference is what makes wrongful trading the far more common claim.

Who is the Official Receiver? A civil servant and officer of the court, part of the Insolvency Service. They deal with the early stages of a compulsory liquidation and can bring a misfeasance claim in that role.

What slows a defence down

No board minutes or financial records. Without a paper trail showing what the director knew and when, and what steps they took, it’s difficult to show the court a considered, responsible response to the company’s position.

No documented professional advice. Directors who took advice but can’t evidence it, or who ignored the advice they received, find it harder to rely on the “reasonable steps” defence.

Continued new borrowing or spending after the warning signs appeared. Taking on fresh debt once insolvency is a real risk is one of the clearest markers a liquidator looks for.

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What protects you

Monitor the company’s financial position properly, not occasionally. Regular management accounts and cash flow forecasts, reviewed at board level, are the clearest evidence a director was managing the position responsibly.

Hold and minute board meetings when things get difficult. A record of what was discussed, what was decided, and why, is one of the strongest protections available if conduct is later reviewed.

Take professional advice early, and follow it. Speak to an insolvency practitioner or solicitor as soon as serious doubts arise about the company’s ability to pay its debts. Acting on that advice is consistently the factor that separates directors who are found liable from those who aren’t.

Understand exactly what you’ve personally guaranteed. Review any personal guarantees given to lenders or landlords so you know your actual exposure, separately from any question of wrongful conduct.

Facing a company insolvency situation as a director is stressful, and the questions about your own position are often the most pressing part of it. Speak to our restructuring and insolvency team for a confidential, no-obligation conversation about where you stand.

Common mistakes

1. Continuing to trade “to see if things turn around.” This is exactly the pattern wrongful trading claims target. Fix: get an honest assessment of the company’s position and act on it, even if that means proposing a CVA or entering administration.
   
2. Not keeping board minutes during a difficult period. Without a record, it’s hard to prove the board acted responsibly. Fix: minute every meeting where the company’s finances are discussed, including the reasoning behind decisions.
   
3. Ignoring or not documenting professional advice. Fix: keep a clear paper trail of advice sought and followed.
   
4. Assuming a personal guarantee only matters if the company fails badly. Fix: understand the terms of any guarantee given, and factor that into decision-making well before a crisis point.

When to speak to a solicitor

If you’re a director and you’re starting to worry about the company’s ability to pay its debts, getting advice early is the single most protective step you can take. This is useful whether or not the company ultimately needs a formal insolvency process.

Speak to a solicitor if:

• Cash flow is tight enough that you’re unsure the company can meet its obligations over the coming months.
• You’re considering taking on new finance, or new contracts, while the company’s position is uncertain.
• A creditor has raised the possibility of legal action.
• You’ve been asked to give, or have already given, a personal guarantee and want to understand your exposure.
• You want a clear, honest view of the company’s options before deciding what to do next.

FAQs

Is wrongful trading a criminal offence?

No. Wrongful trading under section 214 of the Insolvency Act 1986 is a civil liability. Fraudulent trading, under section 213, is the criminal equivalent and requires proof of dishonest intent to defraud creditors.

Can creditors bring a wrongful trading claim themselves?

No. Only a liquidator or administrator can bring this claim, and only after the company has entered the relevant formal insolvency process.

Does resigning as a director before insolvency protect you?

Not automatically. A liquidator can look at conduct going back several years and can pursue former directors for their actions while they held that role. This includes de facto directors (people who act as directors without being formally appointed) and shadow directors (people whose instructions the board is accustomed to following).

What’s the difference between wrongful trading and misfeasance?

Wrongful trading focuses on continuing to trade after the point insolvency became unavoidable. Misfeasance concerns a broader breach of a director’s duties, and the point at which the company is treated as insolvent can be set earlier, which sometimes allows a larger claim.

Can a director be disqualified as well as ordered to pay?

Yes. Alongside any financial contribution ordered by the court, a director found to have acted below the expected standard can be disqualified from acting as a director. This can be for up to 15 years, under the Company Directors Disqualification Act 1986.

ABOUT THE AUTHOR:

Richard Curtin, Senior Consultant Solicitor, has over 35 years’ experience specialising in contentious and non-contentious insolvency and restructuring, advising clients from sole practitioners to the Big Four. He acts for creditors, debtors, directors, and investors, with particular experience in LPA Receiverships, often working alongside real estate colleagues to secure the best outcome for both the officeholder and the appointor.

This article is general information about director liability in England and Wales and is not legal advice. The law can change and every company’s situation is different, so please speak to a qualified insolvency solicitor about your circumstances.