Director's Personal Liability for Company Debts
A director is under an on-going duty to monitor the company's financial state of health and to take appropriate action and/or advice as necessary. Should the company fail, the director's conduct during the period prior to liquidation will face careful scrutiny by the Liquidator. If the Liquidator feels that some time prior to the winding-up, a director ought to have concluded that there was no reasonable prospect of avoiding liquidation and continued to trade (wrongful trading), the directors may be ordered by the Court to accept personal liability to contribute towards the company's debts.
Furthermore, a director should not overlook any binding promises or contractual undertakings or guarantees which have been made on a personal basis in respect of debts due by the company. Personal commitments such as these should only be entered into after taking advice on their terms especially when the business is going through hard times.
At difficult times, a director should ensure also that all decision-making processes are properly recorded so as to avoid inappropriate inferences being drawn at a later stage and to demonstrate that he did all he could at the relevant time to minimise loss to creditors.
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