A Directors Guide

A Company Director who has been reckless with stakeholders money may find themselves to be personally liable. Stakeholders are those people and businesses who are owed money by the company such as trade suppliers, employees, investors, financiers and HMRC.

There is a scale of rising liability from misfeasance through wrongful trading and culminating with fraudulent trading.

A more clear cut case of Director’s liability is where a company director has given a personal guarantee to a specific creditor. This is more often seen to support commercial lending to the company but can also apply to trade creditors.

Director’s liability – Transfer from Sole Trader or Partnership

A rare potentially expensive director’s liability may arise where a formally unincorporated business has been transferred into a limited company. If all creditor accounts (those you pay money to) where not successfully transferred across to the new company then in the event of insolvency of the company the liabilities may well rest with the company director personally as if the limited liability company had never been formed.

This is because the supplier will claim to still be supplying the Sole Trader business and not the limited company.

Advice for Company Shareholders – Company Insolvency

All other creditors must be paid in full before the shareholders are repaid their share capital invested.

The company shareholders will be the last to be paid in the order of the distribution of
assets from the company.

Often company shareholders in a private company may have invested money into the company by way of a loan as well as through buying shares. Repayments of Company Shareholders loans at a time when the company is insolvency is likely to be a preference payment which could be required to be repaid once the company moves into a company insolvency process.

Shareholders may consider security for loans to the company.