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Are directors personally liable for company debt if a winding up petition has been received? 25 March 2010
Derek Cooper (about the author)

If your company is wound up, you will be held responsible for its debts if you have given personal guarantees or have knowingly allowed the business to trade while insolvent.

A winding up petition can be issued by anyone who is owed more than £750 by your company if they believe it is unable to pay its debts.

The receipt of a winding up petition will have very serious consequences for the business. Once the petition is issued, the company bank account will be frozen and significant restrictions are put on its ability to trade.

If the court agrees that the company should be wound up, a liquidator will be appointed and the business will be closed.

Continue reading below...

Director’s liabilities

A company is wound up because it is insolvent and unable to pay its outstanding debt.

Generally the directors will be protected from being personally responsible for these debts because of the rules of limited liability.

However, any director who has personally guaranteed a company debt will be held personally liable for repaying this.

The giving of personal guarantees by directors has become very common over the past few years. Without these, banks have been unwilling to give credit. As such where a business is wound up, directors are often left responsible for repaying bank debts.

Risk of wrongful trading

As a director, it is extremely important to understand that one of the roles of the liquidator if a business is wound up is to investigate the conduct of the company’s directors.

If the directors have allowed the company to continue to trade when they knew that it was insolvent and therefore have made the position of the creditors worse, this is known as wrongful trading.

A consequence of wrongful trading is that the directors can be made personally liable for repaying a company’s debt even if they have not given personal guarantees.

Avoid winding up

Given the personal financial risk that you face as a director if your company is wound up, it is important to avoid such action if possible.

There are a number of strategies that you can employ depending on how you view the future of the business.

A Company Voluntary Arrangement (CVA) can be used to write off 50% or more of the business’s debt while the company continues to trade as normal.

Alternatively you could consider a Pre pack administration involving starting a new business which then buys the assets of the old and starts trading in its place without the burden of its debt.

You may ultimately decide that the best course of action is to close the business. However, to give you the greatest amount of protection, this should be managed sensibly using a Creditor’s Voluntary Liquidation process.

If you are a company director and you are threatened with a winding up order or have already received one, you need to act quickly both to save your business and protect your personal financial situation. 

If you do not do this, and your business is closed, you could find that you are left to personally repay bank loans for which you have given personal guarantees.

If you are accused of wrongful trading you could become liable for other company debts as well.  Your personal possessions such as your home may then be put at risk.

Already too late for the business?

If your business has already been wound up and you are liable for business debts you can't afford, you need to consider the available personal debt solutions such as an IVA or Bankruptcy