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Directors limited liability on Companies

Daniel Griffiths — Thu, 12 Mar 2026 11:20:58 +0000

The myth of limited liability for directors

Incorporation is seen as a way to shield directors from personal liability, however it is not absolute.

Holding Directors personally liable for company liabilities

Particularly where there has been malfeasance, wrongful trading or tax issues.

Directors should minimise risk of personal liability

Taking professional advice, and taking out D&O insurance, are constructive first steps.

Incorporation of a limited company in England and Wales is often seen as a sensible corporate vehicle through which to trade for directors, on the basis that the company acts as a separate legal entity, meaning that it shields directors (and shareholders) from personal liability for business debts. In a limited company structure, personal liability is generally limited to the amount invested in shares in the company.

However, this protection is not absolute. Directors can in certain circumstances be held personally liable for company debts, face fines, or face disqualification from acting as a director (for up to 15 years). Some of these circumstances are considered in further detail below.

Direct Contractual Liability – for instance where a director has signed a personal guarantee in respect of company liabilities.
Overdrawn Director’s Loan Account (DLA).
Wrongful or Fraudulent Trading (sections 214 and 213 Insolvency Act 1986).
Misfeasance (Breach of Duty) (section 212 Insolvency Act 1986).

The general duties of directors are now set out in sections 171-177 of the Companies Act 2006 (CA 2006). In summary, these duties are:

To act within powers.
To promote the success of the company.
To exercise independent judgment.
To exercise reasonable care, skill and diligence.
To avoid conflicts of interest.
Not to accept benefits from third parties.
To declare an interest in a proposed transaction or arrangement.

When a company has entered liquidation, a liquidator will conduct investigations into the causes of the company’s failure with a view to ascertaining if there has been any breach of duty by the directors in relation to their management which has caused loss. Claims for breach of duty against a director can be pursued by a liquidator pursuant to section 212 Insolvency Act 1986. Such claims can encompass any of the following circumstances:

The misapplication or retention of money or other property of the company.
A director becoming accountable for money or other property of the company.
A director breaching a fiduciary or other duty in relation to the company.
A director otherwise being guilty of misfeasance.

If a director is found to have acted in breach of duty whilst in office upon a claim brought against them by a liquidator, they can be required to:-

repay, restore or account for any misappropriated money or property to the company, with interest.
Compensate the company by way of contribution to the company’s assets.

Unpaid Tax Liabilities (HMRC) – in an insolvency context:-

Schedule 13 of The Finance Act 2020 allows HMRC to make directors involved in phoenixism, repeated company failures and non-payment of tax, tax avoidance or evasion, jointly and severally liable for a company’s tax liabilities if the company is in an insolvency process or at real risk of becoming subject to an insolvency process. HMRC can issue Joint Liability Notices (JLNs) to directors in the appropriate circumstances. The individual in receipt of such a notice is jointly and severally liable for the tax liability to the extent specified in the notice.

HMRC may also issue a personal liability notice (PLN) requiring a director of a company (serving at the time of default) to pay a specified amount for Class 1, 1A or 1B NICs that the company failed to pay, together with penalties and interest on the unpaid NICs. The right arises where HMRC determines that the company’s failure to pay is attributable to fraud or neglect on the part of the PLN recipient.

Phoenix companies – (Section 216 Insolvency Act 1986): If a director re-uses the name of an insolvent company for a new business without following prescribed legal procedures required, they can become personally liable for the new company’s debts.

Compensation Orders: Director Disqualification context:- The Secretary of State can apply for a compensation order against a director where a disqualification order has been made (or disqualification undertaking given) in relation to an individual, and the conduct of that individual has caused loss to one or more creditors of an insolvent company.

When deciding what amount to order as payable for compensation, the court will have regard to:

The amount of the loss caused.
The nature of the conduct that caused the loss.
Whether the individual in question has made any other financial contribution in respect of the conduct complained of.

How can directors mitigate against risks of personal liability

Avoid “All Monies” Guarantees: If a personal guarantee is required, try to limit the scope of the guarantees to specified loans/ sums, rather than all of the company debts.
Obtain D&O Insurance: Directors’ and Officers’ (D&O) liability insurance can help cover legal costs and/or the value of certain claims (subject to the policy terms) although most policies will not provide cover in relation to conduct determined to be fraudulent/dishonest.
Seek regular professional advice as and when required, whether that is from accountancy and/or legal professionals. Where there are concerns around actual or imminent insolvency, seek advice from insolvency practitioners.
Corporate Governance – ensure that the company’s financial records are properly maintained, hold regular board meetings and maintain proper written records of all board, shareholders decisions taken.
Act promptly – where correspondence and/or court action is received/issued in respect of outstanding company liabilities – act promptly and take professional advice at the earliest opportunity – particularly where PLNs/ JLNs are received in order to ensure that no stipulated deadlines are missed.

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Debt Relief Orders DROs Surge

Daniel Griffiths — Fri, 26 Sep 2025 08:09:55 +0000

Debt Relief Orders (DROs) – What You Need to Know

A Debt Relief Order (DRO) is a formal insolvency solution for individuals with low income, minimal assets, and unsecured debts under £50,000. It provides legal protection from creditors for 12 months, after which qualifying debts are written off if the debtor’s financial situation hasn’t improved.

Why It Matters

While DROs are rarely encountered in our current debt recovery operations, recent data shows a record number filed in August 2025, making it essential to understand their impact on collections.

Key Implications for Recovery

Once a DRO is approved, there is a 12-month moratorium: ➤ No contact with the debtor ➤ No recovery action permitted ➤ No interest or charges can be added

DROs apply only to individuals, not companies.

After 12 months, if the debtor’s situation remains unchanged, all qualifying debts are legally written off making it a great solution to be explored for anyone fitting its criteria

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My latest review

Daniel Griffiths — Mon, 09 Jun 2025 13:59:00 +0000

My latest verified review,

From the very first phone call, Daniel was incredibly kind, empathetic and never once made me feel judged. His support meant the world to me during such a difficult time.

Daniel’s wealth of knowledge was evident every step of the way. He guided me through the entire bankruptcy process with clarity and patience, making something so daunting feel manageable.

Now, 12 months later, I’ve been discharged and I feel so much better. I’m finally ready to move on to the next chapter of my life and I couldn’t have done it without Daniel’s help. I truly can’t thank you enough

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Can All Google reviews be trusted

Daniel Griffiths — Tue, 11 Mar 2025 09:52:38 +0000

I have started to get emails through about buying Google reviews which seem to now be for sale to help boost business, I have been offered by email the chance to purchase 10 google reviews which are gradually fed into the system for the fee of $185 dollars, ironically I have had another email from another company telling me they can remove a negative google reviews again for a fee.

How long will it be when businesses get unfair reviews from people who have never used their services just so they can be blackmailed to get these reviews removed which were unfairly posted in the first place.

Thankfully I do not ask for or need reviews about my service having served clients well over the last 20 years I get my referrals from word of mouth and have all the business I need from that word of mouth however having received these emails I think I will think twice about relying on reviews in future about any service

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Research shows concerning level of poor practice in the IVA market

Daniel Griffiths — Mon, 21 Oct 2024 09:38:02 +0000

My blog this week is again focused on the IVA market and its poor practises selling these schemes to clients who many should have never been considered for such schemes, however adverts on Facebook advising clients of little known Government legislation allows you to substantially write off a portion of your debts some using a figure of up to 90% need to be paid for along with staff wages selling these schemes, the article is below and is interesting reading:

Research was commissioned by the Insolvency Service in light of concerns about the Individual Voluntary Arrangement market.
Of the 310 terminated IVAs that were examined, 60% showed evidence of poor practice by providers.
The Insolvency Service is working with the industry’s regulators to address the situation.

Latest research commissioned by the Insolvency Service has shown evidence of poor practice among providers of Individual Voluntary Arrangements.

Individual Voluntary Arrangements (IVAs) are a legally binding agreement between a person who is insolvent and their creditors.

They are administered by licensed Insolvency Practitioners, usually last for between five and six years, and give people the opportunity to pay an affordable monthly contribution towards their debts.

After concerns were raised about the way IVAs were being offered to people who signed up to them, the Insolvency Service commissioned independent research to look into the market.

The research, which has been published today, looked at 310 randomly selected IVAs which had been both registered and terminated between 2021 and 2023, and found that 60% showed evidence of poor practice in the early stages.

Examples of poor practice included people’s income and expenditure not being recorded accurately by providers, other debt solutions being incorrectly dismissed and providers failing to make sure people understood what they were signing up to.

Claire Hardgrave, the Head of Insolvency Practitioner Regulation for the Insolvency Service said:

Poor practice in the IVA market isn’t in anyone’s interest. It is bad for the economy, for creditors and providers, and it has negative consequences for people dealing with problem debt, including those who are vulnerable.

While IVAs can work well for many, if an IVA is unsuitable it can leave people struggling with their household budget, being in debt for longer, or even taking on more debt to make their IVA payments.

We are working with the industry’s regulators on ways to improve this important area of support for people with debt, to make sure they are always given the best advice.

Across England and Wales, a total of 64,050 IVAs were registered in 2023.

The agreements freeze a person’s debts, stop recovery action and provide debt-relief, allowing them to become debt free over a set period. They often provide a better outcome for consumers and creditors than alternative debt solutions, such as bankruptcy.

Despite steps to improve poor practices over the past few years, the Insolvency Service has still received reports of poor practices, including aggressive marketing towards people in financial distress which fails to mention the fees which organisations charge or the cheaper alternatives available.

Following the publication of its research, the Insolvency Service is continuing to progress its work with regulatory bodies on actions to improve the IVA market.

Measures being investigated include creating new advertising protocols, simplifying the process for people entering IVAs, making sure people are presented with more information before they sign up to an IVA and providing better training for Insolvency Practitioners’ staff.

Anna Hall, Corporate Director for Debt at the Money and Pensions Service, said:

This research shows how incredibly important it is that those who are struggling with debt have access to free and impartial advice, helping them to understand the best way to manage their financial situation.

For free and impartial guidance, visit MoneyHelper.org.uk to access our debt advice locator tool which provides information about free and confidential debt advice online, over the phone or near to where you live.

A debt adviser will treat everything you say in confidence, never judge you, and will suggest ways of dealing with debts that you might not know about.

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Warning to Directors of Companies facing financial pressure

Daniel Griffiths — Thu, 22 Aug 2024 07:16:57 +0000

On 19 August 2024, the latest British Home Stores (“BHS”) judgment set out how trading misfeasance claims were to be quantified. In awarding the companies £150 million against two former BHS directors, the English Court for the first time addressed how equitable compensation should be calculated for breaches by directors of what has been termed the “modified Sequana duty”. Trading misfeasance (as the court has decided the new offence should be termed) is the failure of directors to consider the interests of creditors when a company is insolvent or bordering on insolvency, but instead carrying on trying to trade out of trouble.

BHS collapsed into administration in 2016 just 15 months after it had been sold for just £1 to a consortium with no retail experience. On 11 June 2024, the main judgment was handed down which was the largest-ever award for wrongful trading under Section 214 of the Insolvency Act 1986. The judgment also made key findings of fact and law on various issues of liability and causation for both wrongful trading and “trading misfeasance”, a cause of action explored for the first time in English law in this case.

This latest judgment addresses the quantum of the liability, which was based on claims that the directors had breached their fiduciary duties by causing the companies to continue trading through increasingly expensive borrowing (rather than placing them into administration) when they knew or ought to have known that insolvency was more probable than not. The court applied a “but for” test of causation and importantly applied it on a joint and several basis against the directors. In doing so, the court rejected the complaint that the new cause of action exposed directors to a significantly greater liability than the stricter (and well established) statutory offence of wrongful trading—which had led to a much smaller quantum of just £6.5 million against two of the directors.

The court also dismissed the defendant’s argument that the measure of compensation for trading misfeasance should be limited to the loss arising out of the single misfeasant transaction or venture. Instead, where the directors’ breach of duty is entering into a transaction which allowed the companies to continue to trade contrary to the interests of creditors, the starting point for the loss for which they are liable is the increase in net deficiency caused (i.e. the total difference between the company’s assets and liabilities at the point of (i) breach and (ii) ultimate administration).

While it was common ground that the principle of remoteness does not apply to these claims, the court held that it is still necessary to prove that the breaches of duty were the effective cause (even if not the sole cause) of the losses which the company suffered rather than simply the occasion for them. The court also introduced a common law concept of scope of duty when analysing the quantification of damages for breach of fiduciary duty. Where those losses are unrelated to the breach of duty, they will not be recoverable.

In the case of BHS, which was burdened with a substantial pensions deficit both when it was sold and went into administration, the losses arising from changes in pension fund values that fluctuated as a result of various market conditions were deemed unrelated to the directors’ duties (and breach) and so not recoverable. The court held that there was no nexus between the risk of harm against which the directors had a duty to protect the companies and the increase in pension deficit. Nevertheless, the losses that could be linked to their breaches left each of the directors liable for around £150 million.

While the BHS facts are relatively extreme, the fact that directors were found liable to such an extent, when in some cases they were earning around £150,000 a year and (at least in one case) had limited involvement at board level, is a warning to all directors of companies facing financial pressure.

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Pub Landlord Insolvencies hit a ten year High

Daniel Griffiths — Fri, 22 Mar 2024 11:14:46 +0000

Pub insolvencies hit ten year high

Nearly 800 pubs entered insolvency in 2023 – the highest number in over a decade.

According to data from accountancy firm Price Bailey, 769 pubs closed across the UK, which marked a 48% jump from the 518 closures recorded in 2022.

Price Bailey said the final figure was likely to be higher, as more pubs would have been closed by multi-site groups that did not enter insolvency.

There were 38,175 pubs in the UK at the end of 2023, down from 41,015 a decade earlier.

Data obtained by Price Bailey under the Freedom of Information Act also revealed there were on average 2.1 pub closures per day in 2023, up from 1.4 per day in 2022.

The closures were accelerated by issues such as soaring costs across the board, customers struggling with lower disposable income, train strikes and high interest rates, which hit 5.25% by the end of the year.

The government’s £18b energy support package for businesses also tapered away towards the end of Q1 2023, which aggravated cost pressures for publicans.

However, despite the persistent closures among large pub chains and small independent pubs, Price Bailey said independent craft breweries and themed pubs with a competitive socialising element were generally proving more resilient.

Matt Howard, head of the insolvency and recovery team at Price Bailey, said: “2023 saw the highest level of pub failures in over a decade. While there are some glimmers of hope, underlying trading conditions remain challenging and rising labour costs continue to exert strong pressure on margins.

“Publicans are still restricting opening hours and scaling back the services they provide to customers during off-peak hours. While it can provide a short-term boost to profitability to focus on the most profitable business hours, it can come at the cost of long-term customer relationships.”

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IVAs continue to fall in November 2023

Daniel Griffiths — Mon, 15 Jan 2024 13:20:49 +0000

For individuals, the total number of insolvencies in November 2023 was 8,243, 21% lower than in the same month in the previous year (10,478 in November 2022).

The individual insolvencies consisted of 661 bankruptcies, 3,290 debt relief orders (DROs) and 4,292 individual voluntary arrangements (IVAs). The lower number of individual insolvencies compared to November 2022 was driven by a 44% decline in the number of IVAs. IVA numbers in 2023 to date have been lower than in 2022, which saw a record high annual number. DRO and bankruptcy numbers were higher than last year, with DROs in November 2023 being 45% higher than in November 2022, although the number of bankruptcies remained well below pre-2020 levels.

Figure 2 shows the historical trend of individual insolvencies covering the past four years. Monthly numbers back to January 2019 can be found in Table 3 of the accompanying tables.

Note that IVA numbers shown reflect the date of registration with the Insolvency Service, rather than the date of approval and these are therefore not directly comparable to the monthly numbers of bankruptcies and DROs. Numbers of IVAs by month of approval can be found in Table 3.1 of the accompanying tables.

Figure 2: IVA numbers so far in 2023 have been lower than in 2022. Bankruptcy and DRO numbers were higher in November 2023 than in the same period last year.

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HMRC Stance on unpaid dues

Daniel Griffiths — Wed, 06 Dec 2023 11:01:17 +0000

HMRC’s stance

When you or your company are experiencing financial difficulty, it is easy to prioritise payments to trade creditors or suppliers, on whose continued support and patience you rely. It is easier still to put payment of tax debts to the bottom of the pile.

However, failing to pay sums which HMRC considers to be due and owing will not go unnoticed. Recently HMRC has taken a particular interest in the tax affairs of high-net-worth individuals. In particular, we are aware of instances of HMRC targeting individuals based in the “Golden Triangle” (or “Footballer Belt”) in the Greater Manchester area (Cheshire). We have also noted a continuing trend of HMRC focusing on known areas of concentrated wealth in the south of England.

We have also seen increased HMRC activity in relation to companies claiming research and development (R&D) relief. Here, HMRC’s tried-and-tested practice of targeting lower hanging fruit persists: HMRC’s approach appears to be to target medium or small businesses, sometimes entirely in the R&D phase of their businesses, rather than targeting larger multi or international companies who may outsource or maintain their R&D work offshore (i.e. outside the confines of the UK’s tax system). However, this approach means the company’s targeted are often the list able to deal with the added tax burden. The impact of denying R&D relief claims at the incubation stage of a medium or small company could leave many companies in financial difficulty or unable to develop further novel and innovative businesses.

Even if a taxpayer (whether a high net worth individual or R&D company) has taken reasonable care in their tax affairs and made perfectly reasonable and sustainable claims for tax relief(s), they could still find themselves subject of an enquiry by HMRC. Such enquiries can in turn put the taxpayer at the wrong end of a decision meaning that they owe significant sums to HMRC. This may lead to a demand for payment being made by HMRC. Often these demands are sent in the absence of information being provided by the taxpayer in response to queries from HMRC with relatively tight statutory deadlines for response.

What to do if you’re served with a demand by HMRC

Don’t ignore it! HMRC is not in the habit of going away if you don’t engage with it. Our experience demonstrates that, if correspondence from HMRC goes unanswered, it will press ahead with enforcement without further warning. The inner workings of HMRC mean that once a file is referred to its in-house lawyers, it is then difficult to get it sent back to the disputes team in order to allow the taxpayer to deal with any disagreements over sums demanded and/or reach an agreement for the payment of the sums demanded.

What if you dispute the sum which HMRC is demanding?

Make sure that you document your dispute over the sums claimed in writing. Then, follow up with HMRC until you are sure that your dispute is being actively dealt with by a member of the disputes team. Keep detailed, contemporaneous, records of all calls/dealings with the allocated HMRC member.

Our experience shows that it is not enough to simply write to HMRC disputing the debt: You cannot assume that doing so means that HMRC is looking into the issue for you. Diligence is crucial.

I’ve been served with a statutory demand by HMRC – what do I do now?

You have a very short amount of time, following service of a statutory demand, within which to act.

If you fail to act within the statutory timescales, you leave yourself open to having a bankruptcy petition (if you are an individual) or a winding up petition (if you are a company) presented against you.

Bankruptcy Petitions

If you are an individual, you have 21 days from the date that the statutory demand was served on you within which to:

Make payment in full or agree a repayment plan with HMRC:
Prove to HMRC that the debt is not due and owing; or
Apply to Court to set the statutory demand aside.

An application to set aside a statutory demand asks the Court to render the statutory demand ineffective on the basis that the sums demanded are disputed on genuine and substantial grounds.

You will be required to file a witness statement with the Court setting out how the sums are disputed, and the Court will set a hearing date decide your application. If it decides against you, it is then open to HMRC to present a bankruptcy petition in respect of the debt.

Winding up petitions

If you are a company, you have 21 days from the date that the statutory demand was served on the company within which to either:

Make payment or agree a repayment plan with HMRC;
Prove to HMRC that the debt is not due and owing; or
Obtain an injunction from the Court, restraining HMRC from presenting a winding up petition against the company based on the sums demanded in the statutory demand.

Such injunctions are typically urgent and costly.

The injunction must be supported by a witness statement, setting out in detail how the debt is disputed, and demonstrating to the Court that HMRC should not be allowed to proceed with a winding up petition. The application will be listed for hearing, and both HMRC and the Company will be entitled to make representations. If your application is unsuccessful, it will then be open to HMRC to commence winding up proceedings against the company, with an aim of winding the company up.

I missed the deadline for responding to the statutory demand and now HMRC have presented a winding up petition against my company – what do I do?

Again, acting promptly here is absolutely essential.

Seven working days after service of the winding up petition, the window opens for HMRC to advertise the petition in the London Gazette (this is a step which must be taken prior to a winding up order being made). The impact of the advertisement of a winding up petition can ultimately be the reason for a company’s actual failure: Once advertised, a company’s bank account statements will be frozen, preventing it from making any payments out of the account.

In order to continue to trade in such circumstances, a company will often rely on loans from directors which, if a winding up order is subsequently made, are often irrecoverable. Alternatively, the company can seek a validation order from the Court. Aan application for a validation order asks the Court to allow the company to make payment in respect of specific debts, such as (for example) salaries. However, an application for a validation order requires the company to submit witness evidence to show that the company will be in a better (or, at least, will not be in a worse) position as a result of making the payment, should it eventually go into liquidation.

Additionally, after advertisement, other creditors may become aware of the petition and give notice that they intend to “support” the petition. This can mean that, even if you pay the debt due to HMRC, other creditors can step into HMRC’s shoes, and take over the petition.

I missed the deadline for responding to the statutory demand and now HMRC have served a bankruptcy petition against me – what do I do?

The bankruptcy petition will be listed for a hearing. If you dispute the debt you will have the opportunity at the hearing to defend the making of a bankruptcy order against you. The Court may ask the parties to file witness statements, setting out their respective positions on the debt.

If you don’t dispute the debt, but you need time to make payment, you may engage with HMRC to come to an agreement on settlement terms or you can ask the Court to grant an adjournment of the petition to allow you time to find the funds.

It is possible that other creditors may find out about the bankruptcy petition being made against you. If that is the case, they may appear at the hearing and either support the making of a bankruptcy order against you or may ask the court to allow them to step into HMRC’s shoes as petitioner, if you have found the funds to pay HMRC beforehand. You will then need to address that debt too (whether disputing it or making payment).

Top tips

Engage in correspondence with HMRC early – if you need a Time To Pay Agreement, HMRC are more likely to be open to this request if you approach them early with a suggestion for payment down of any debts due. Do not wait until HMRC are knocking on your door with a statutory demand.
If you don’t agree with a tax bill, be sure to put your dispute in writing to HMRC at the earliest possible opportunity. Then, follow up with them to ensure that your dispute is being looked at and dealt with. Do not assume, just because your letter has been sent, that your case is being reviewed by HMRC.
Seek legal advice – if you are in any doubt as to your position, seek advice from a tax disputes lawyer and/or an insolvency lawyer. These matters can be complex, and input from us at an early stage can help resolve matters, without getting involved in costly court procedures

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IVAs decline by 27% in October 2023

Daniel Griffiths — Sat, 25 Nov 2023 15:16:07 +0000

October 2023 Insolvency statistics show another decline in IVAs, are people now more aware of the fail rate of these solutions

The October 23 individual insolvencies consisted of 703 bankruptcies, 3,245 debt relief orders (DROs) and 5,933 individual voluntary arrangements (IVAs). The lower number of individual insolvencies compared to October 2022 was driven by a 27% decline in the number of IVAs. IVA numbers in 2023 to date have been lower than the record-high numbers in 2022. DRO and bankruptcy numbers were higher than last year, with DROs in October 2023 being 71% higher than in October 2022, although the number of bankruptcies remained well below pre-2020 levels.

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