When can a director be held personally responsible UK?
Directors in the United Kingdom are typically expected to act in the best interests of the company they serve. However, there are certain circumstances under which a director may be held personally responsible for their actions or inactions. Understanding when a director can be held personally liable is crucial for directors to ensure they comply with legal obligations and avoid potential personal financial risks.
1. Breach of Fiduciary Duty
One of the most common scenarios where a director can be held personally responsible is when they breach their fiduciary duty. Directors owe a duty of care, skill, and diligence to the company and its shareholders. If a director fails to fulfill these duties, they may be held personally liable for any resulting losses. This could include situations where a director acts in their own interest at the expense of the company or fails to act in the best interests of the company.
2. Breach of Statutory Duties
Directors in the UK are subject to various statutory duties, including those under the Companies Act 2006. If a director fails to comply with these duties, they may be held personally responsible. For example, if a director fails to keep proper accounting records, fails to prepare or file accounts, or fails to notify the registrar of changes to the company, they may face personal liability.
3. Misfeasance
Misfeasance refers to wrongful acts committed by a director in the course of their duties. This could include fraud, theft, or any other form of dishonesty. If a director is found to have committed misfeasance, they may be held personally liable for any losses incurred by the company as a result of their actions.
4. Wrongful Trading
Under the Insolvency Act 1986, a director may be held personally liable for wrongful trading if they continue to trade the company when there is no reasonable prospect of it being able to pay its debts as they fall due. If a director is found to have acted recklessly or dishonestly in this regard, they may be required to contribute towards the company’s debts.
5. Unlawful Payments
A director may be held personally responsible if they make unlawful payments or distributions to the company’s creditors or shareholders. This could include payments that are in breach of the company’s articles of association or payments that are made without proper authority.
Conclusion
In conclusion, directors in the UK can be held personally responsible under various circumstances, including breaches of fiduciary duty, statutory duties, misfeasance, wrongful trading, and unlawful payments. It is essential for directors to be aware of their legal obligations and act in the best interests of the company to avoid potential personal liability. Seeking legal advice and staying informed about the latest developments in corporate law can help directors mitigate the risks associated with personal liability.
