15/01/2025

A director of a dissolved company is not usually personally liable for its debts.

However, this is an area of law that raises lots of questions among clients, the most frequently asked of which are:

  • Where a company is struck off by the Registrar of Companies and the company owes monies to creditors, are the directors personally liable for the debts?
  • Does it make any difference if an objection to striking off was raised by a creditor but then withdrawn or no objection made in the first place?
  • If the director is liable for debts owed to a creditor once the company is struck off how would the creditor go about enforcing the debt against the director?

When a company is dissolved, its liabilities are extinguished, to the extent that it is not possible to pursue the company to recover them (other than by first bringing proceedings for the company’s restoration). If the debt was not secured by a personal guarantee, the creditor’s only remedy will be to restore the company to the register (if possible) and bring legal proceedings against the restored company.

HMRC has the power to pursue directors jointly and severally for the tax liabilities of dissolved companies in cases of tax avoidance or evasion or repeated insolvency and non-payment cases. Otherwise, liabilities owed by a company to creditors do not become the personal liability of its former directors simply by reason of the company’s dissolution. As a general rule, the directors of a company are not personally liable for the company’s debts, the company has separate legal status.

Of course, the position would be different if the liability in question was in fact the directors. This could be established if, for example, the directors acted dishonestly or procured the company to commit a tort.

Section 213 of the Insolvency Act covers fraudulent trading. This occurs where, in the course of the winding up of a company, it appears that any business of the company has been carried on with the intent to defraud creditors or for any fraudulent purpose. In these circumstances, further action can be taken.

Section 214 of this act covers wrongful trading, for example, when the directors of a company continue to trade when they knew or ought to have known, that there was no reasonable prospect of avoiding insolvency liquidation.

Questions about director liabilities?

For advice on this or any debt recovery matter, please contact Richard Anderson for further information. You can email richard.anderson@beswicks.com or call us on 01782 205000 or 0161 929 8494. Take a look at our services to find out more about how we can help you.