Directors Duties & Responsibilities
Essential guide to UK company director duties, legal obligations, and personal liabilities. Protect yourself from wrongful trading, disqualification, and insolvency risks.
Director Duties Change When Company is Insolvent
Critical: When your company becomes insolvent, your primary duty shifts from serving shareholders to protecting creditors. Failure to understand this can result in personal liability, disqualification, and wrongful trading claims.
Understanding Directors Duties
UK company directors have significant legal responsibilities under the Companies Act 2006, Insolvency Act 1986, and common law. Understanding these duties protects you from personal liability.
Seven Codified Duties (Companies Act 2006)
Act Within Powers
Exercise powers in accordance with company's articles and memorandum
Promote Success of Company
Act in good faith to promote success for shareholders' benefit
Exercise Independent Judgment
Make decisions independently, not merely following others
Exercise Reasonable Care & Skill
Apply knowledge and experience reasonably expected of director
Additional Duties
Avoid Conflicts of Interest
Prevent personal interests conflicting with company duties
No Third Party Benefits
Don't accept benefits from third parties that could compromise position
Declare Interests
Disclose any interest in proposed transactions with company
When Insolvent:
Duty shifts to creditors. Must act in best interests of creditors, not shareholders. Failing to recognize insolvency can lead to wrongful trading liability.
Who is Considered a Director?
Director duties apply to various types of directors and those acting in directorial capacity, even without formal appointment.
Appointed Directors
Formally appointed executive and non-executive directors with equal legal responsibilities
Shadow Directors
Those whose directions the board follows, including major shareholders, lenders, or advisers
De Facto Directors
Acting as directors without formal appointment - CEOs, CFOs, consultants making board-level decisions
Alternate Directors
Appointed to represent another director - still registered and liable as full directors
Important: No Distinction in Insolvency
In insolvency proceedings, all types of directors face equal scrutiny and liability. Non-executive directors, shadow directors, and de facto directors are all subject to the same potential claims for wrongful trading, misfeasance, and other breaches.
Understand Your LiabilityWhen Your Company Becomes Insolvent
Understanding insolvency tests and how they change director duties is crucial for avoiding personal liability.
Four Tests for Insolvency
Cash Flow Test
Cannot pay debts as they fall due - running out of cash
Balance Sheet Test
Liabilities exceed assets - negative net worth
Unsatisfied Judgment
Court judgment debt remains unpaid
Statutory Demand
Statutory demand not paid or disputed within 21 days
Changed Director Duties
Primary Duty Shifts:
From serving shareholders to protecting creditors
Creditor Interests First
All decisions must prioritize creditor recovery and protection
Seek Professional Advice
Essential to engage turnaround professionals immediately
Consider Ceasing Trade
Unless strong prospect of avoiding insolvent liquidation
Critical: Get Professional Advice Immediately
If your company meets any insolvency test, seek immediate professional advice. Taking and following appropriate professional advice can protect you from personal liability for wrongful trading and other director misconduct claims.
Director Liabilities and Penalties
Directors face significant personal liabilities for breaches of duty, especially when companies become insolvent.
Wrongful Trading (s214 IA86)
Most Common Director Liability: Continuing to trade when knew or ought to have known no reasonable prospect of avoiding insolvent liquidation.
Consequences:
- • Personal contribution to company assets
- • Unlimited personal liability
- • Directors jointly and severally liable
- • Disqualification up to 15 years
Defense:
Professional Advice Protection: Taking and following appropriate professional advice to minimize creditor losses provides defense.
Director Disqualification
Company Directors Disqualification Act 1986: Directors can be banned from acting as directors for 2-15 years.
Common Grounds:
- • Unfit conduct during insolvency
- • Three filing defaults in 5 years
- • Fraudulent or wrongful trading
- • Breach of fiduciary duties
Impact:
- • Cannot be company director
- • Cannot manage companies
- • Cannot form new companies
- • Criminal offense to breach order
Additional Director Liabilities
Fraudulent Trading
Criminal offense - carrying on business to defraud creditors with intent
Transactions at Undervalue
Asset disposals below market value in 6 months/2 years before insolvency
Preferential Payments
Favoring certain creditors over others in approach to insolvency
Trading While Insolvent
It's possible to continue trading while insolvent, but only with proper safeguards and professional advice.
When Trading May Continue
Reasonable Prospect Test
Strong likelihood of avoiding insolvent liquidation
Creditor Benefit
Trading must be in best interests of creditors, not shareholders
Professional Advice
Must take and follow appropriate turnaround professional advice
Document Decisions
Record all board decisions and rationale in meeting minutes
Critical Restrictions
Immediate Changes Required:
- • No new credit without disclosure of insolvency
- • No preferential payments to creditors
- • No transactions at undervalue
- • No company credit card usage
- • All new supplies must be paid pro-forma
High Risk Activities
Customer deposits, director loans, asset disposals require extreme caution
Maintain Records
Continue proper accounting, HMRC payments, and statutory filings
Essential Continuance Principles
Financial Controls
- • Pay suppliers pro-forma only
- • No new credit arrangements
- • Separate trust accounts for deposits
- • Review all debtor payment terms
Asset Protection
- • Properly insure all company assets
- • Protect goods from retention of title claims
- • Avoid liens and set-off situations
- • No asset disposals below market value
Compliance
- • Pay all future HMRC liabilities on time
- • Continue pension contributions
- • File accounts and returns on time
- • Maintain adequate accounting records
How K2 Protects Directors
With over 30 years of experience, K2 provides comprehensive director protection and company rescue services, helping directors navigate complex insolvency situations while minimizing personal liability.
Director Protection Services
Immediate Liability Assessment
Rapid evaluation of director position and potential exposures
Legal Defense Strategy
Professional defense against wrongful trading and disqualification claims
Business Rescue Plans
Turnaround strategies to restore solvency and protect director positions
Creditor Negotiations
Professional representation in restructuring and settlement discussions
Proven Track Record
Case Study:
Successfully led DSTBTD Restructuring Plan achieving 100% creditor support, protecting directors while saving the business and 100+ jobs.
View Full Case StudySuccess-Based Fee Structure
Unlike traditional advisors who charge fees regardless of outcome, K2 invests in your success. We take minority equity or success fees, ensuring our interests align completely with yours.
Our investment approach means we're motivated to achieve the best possible outcome for both your business and your personal position as a director.
Why Choose K2 for Director Protection?
- • Immediate director liability assessment
- • 30+ years of successful director defense
- • Investment partnership approach
- • Proven business rescue expertise
- • Success-based fee structures
- • Dedicated partner throughout process
Essential Director Compliance
Proper record keeping and compliance are essential for director protection and avoiding personal liability.
Accounting Records
Legal Requirements
Maintain adequate records showing financial position
Retention Period
Keep records for minimum 6 years from financial year end
Failure Consequences:
- • Criminal offense
- • Director disqualification
- • Joint liability for all directors
Director Transactions
Loan Accounts
Director loans pursued in insolvency - joint liability applies
Connected Transactions
Substantial transactions require member approval
High Risk Areas:
- • Loans over £10,000
- • Property transactions
- • Guarantee arrangements
Personal Tax Liability
PAYE Liability
Personal liability for own PAYE if company "willfully failed" to deduct
NIC Liability
Directors liable for all company NIC debts, not just own
HMRC Powers:
- • Transfer company debts to directors
- • Require security deposits
- • Personal guarantees for new companies
Immediate Action Plan for Directors
If you're concerned about your company's financial position or director liabilities, follow these immediate steps.
Assess Solvency
- • Review cash flow forecasts
- • Check balance sheet position
- • Identify pending judgments
- • Apply four insolvency tests
Seek Advice
- • Engage licensed insolvency practitioner
- • Contact turnaround professionals
- • Document advice received
- • Follow professional recommendations
Protect Position
- • Call formal board meeting
- • Document all decisions
- • Implement trading restrictions
- • Consider ceasing trade
Implement Plan
- • Execute rescue strategy
- • Monitor compliance strictly
- • Regular progress reviews
- • Prepare for next steps
Concerned About Your Director Position?
Don't wait for problems to escalate. K2's director protection experts can assess your position, advise on compliance requirements, and help implement strategies to minimize personal liability.
Frequently Asked Questions
Common questions about director duties, responsibilities and liabilities
What are the main duties of a company director in the UK?
UK directors have seven codified duties under the Companies Act 2006: act within powers, promote company success, exercise independent judgment, show reasonable care and skill, avoid conflicts of interest, don't accept third-party benefits, and declare interests in transactions. When insolvent, duty shifts to protecting creditors.
Can non-executive directors be held personally liable?
Yes, there's no legal distinction between executive and non-executive directors. All directors face equal liability for wrongful trading, disqualification, and other breaches. Non-executive directors must stay informed about company affairs and attend board meetings to fulfill their duties properly.
How do I know if my company is insolvent?
Apply the four insolvency tests: cash flow test (can't pay debts when due), balance sheet test (liabilities exceed assets), unsatisfied court judgment, or unresolved statutory demand over £750. If any test is met, seek immediate professional advice as director duties change fundamentally.
What is wrongful trading and how can I avoid it?
Wrongful trading occurs when directors continue trading after they knew or should have known there was no reasonable prospect of avoiding insolvent liquidation. Avoid it by taking immediate professional advice when insolvency is suspected, documenting all decisions, and following expert recommendations to minimize creditor losses.
Can I be disqualified as a director and for how long?
Yes, directors can be disqualified for 2-15 years under the Company Directors Disqualification Act 1986. Common grounds include unfit conduct during insolvency, three filing defaults in five years, or fraudulent/wrongful trading. Disqualification prevents acting as a director or managing companies and breaching an order is a criminal offense.
Protect Your Director Position Today
Understanding and fulfilling director duties is crucial for avoiding personal liability. With K2's 30+ years of experience protecting directors and rescuing businesses, you get expert guidance when you need it most.
24/7 director emergency support • Confidential consultation • Success-based fee structures