When can a director become personally liable?
Limited liability normally separates company debts from a director's personal finances. Specific contracts, transactions and conduct can create separate exposure.
7 min read · Last reviewed August 2026Common sources of exposure
The existence and amount of any personal claim depends on documents, transactions and the surrounding facts. Transactions at an undervalue and preferences do not automatically make a director personally liable. Exposure may arise where the director was a recipient or beneficiary, or acted in breach of duty.
- Personal guarantees
- Overdrawn director's loan accounts
- Misfeasance or breach of duty
- Transactions at an undervalue or preferences involving the director
- Wrongful or fraudulent trading allegations
Personal guarantees
Identify the creditor, facility, cap, security, trigger events and any variations. Do not assume the amount claimed is automatically correct.
Conduct and records
Contemporaneous records help demonstrate the information available to the board and the reasons for decisions. Missing records can make the position more difficult to explain.
Common questions
Does liquidation activate every guarantee?
The effect depends on the wording and any existing default. The document and creditor position should be reviewed.
Does every failed company lead to a director claim?
No. Business failure does not itself establish misconduct or personal liability.
This guide is general information only and does not constitute insolvency, legal, tax or financial advice. The position should be reviewed using the company's current facts and documents.