For many directors, the assumption is simple: if a company fails their personal liability ends with the business. In reality, that line is becoming increasingly blurred. We are seeing a clear rise in cases where directors face personal financial liability following company insolvency, nearly always linked to decisions made during the period of financial distress.
For accountants, solicitors and professional advisers understanding where these risks arise and when to seek specialist insolvency advice is critical. Early intervention doesn’t just protect the business, it can protect the directors too.
Why personal liability is increasing
As insolvency practitioners we are seeing more cases of director personal liability particularly where warning signs were present but action was delayed. There are several factors driving this trend:
- Greater scrutiny from HMRC and creditors.
- A shift in how the law is interpreted (from case law).
- Increased use of ‘no win no fee’ engagements by solicitors and barristers.
- More awareness of litigation funding and contingent ‘After the Event’ (‘ATE’) insurance to cover adverse costs.
- A tougher economic climate leading to more companies experiencing prolonged financial distress.
Common triggers for personal liability
While every case is different, there are consistent themes.
- Directors duties were codified in the Companies Act 2006 and the courts interpret this strictly.
- Continuing to trade while insolvent. Directors have a duty to act in the best interests of creditors once insolvency is likely. Failing to do so can result in personal liability with the courts broadening the period in which personal liability can arise.
- HMRC arrears and pressure. HMRC is often one of the largest creditors and increasingly active in pursuing recovery and investigating director conduct.
- Poor record keeping or lack of financial oversight. Directors are expected to understand the financial position of their business and ensure accurate records are kept.
- Fraud or asset dissipation (in more serious cases). This is a growing area of focus.
Our specialist investigations team’s work highlights that many firms lack the capability to fully pursue these cases, despite their scale and complexity.
Free advice line for distressed company directors > 08003317417
When personal liability leads to bankruptcy
In more serious cases, personal liability doesn’t stop at financial claims, it can lead to a director being made bankrupt. This can arise where personal guarantees are called in or claims are made by insolvency practitioners or creditors … and directors cannot pay. For directors, this can have long-term consequences, including:
- Loss of personal assets
- Restrictions on acting as a director
- Loss of reputation
- You can read more about how this works in practice here >
Directors often act too late
The biggest risk isn’t always the situation itself, it’s how long it goes on unaddressed. Many directors only seek advice when:
- Cash flow has already collapsed
- Creditor pressure is escalating
- HMRC action is imminent
However, only around one in four initial conversations with us actually lead to a formal insolvency process, meaning taking early advice can prevent escalation into an insolvency process altogether. This highlights a key point: early intervention is not about liquidation, it’s about protecting options. As a director if you’re unsure whether you may be at risk of personal liability an early conversation with a Licensed Insolvency Practitioner can help. Explore the full resource hub here >
Practical steps to reduce risk
- Encourage early conversations – the earlier the discussion with a Licensed Insolvency Practitioner the more options are available.
- Document decisions – a clear decision trail can significantly reduce risk.
- Seek independent advice – and follow it. This will ensure directors act responsibly.
- Use our free Business Health Check – a simple starting point for all directors and its free to use.
- Initiate a pre insolvency review – for any possible claims, so you can go into any insolvency process knowing the obvious risks.
Supporting your clients with confidence
For accountants and solicitors, the challenge is balancing and incorporates protecting client relationships, providing clear and timely advice and knowing when to invoice a specialist. McTear Williams & Wood’s approach is deliberately different:
- Initial advice is free and impartial
- The focus is on finding the right outcome, not pushing insolvency
- We always support directors where we can
This is particularly important in a market where some firms prioritise volume over outcomes, whereas MWW focuses on quality, ethical decision-making and long-term client outcomes.
BUSINESS RESCUE & INSOLVENCY SPECIALISTS
Download your free Directors' guide
This free, easy-to-read guide is designed to help directors whose company is in financial distress. It will assist directors to navigate around insolvency issues and avoid potential pitfalls, split over ten sections this guide walks you through the matters in a logical order you are
likely to need to consider.
What should directors do if their business is failing?
If your company is struggling, the most important thing is to act early. Here’s what to do:
- Keep accurate records – monitor cash flow closely and avoid transferring assets out of the business.
- Speak to and follow the advice of a Licensed Insolvency Practitioner – don’t wait until it’s too late.
- Take every step to protect the interests of creditors if the company is insolvent – continuing could increase personal risk.
- Explore all options – including trading on, restructuring and refinancing or a Company Voluntary Arrangement.
- Communicate with stakeholders – transparency builds trust and can buy time.
How McTear Williams & Wood can help
At McTear Williams & Wood, we’ve helped hundreds of directors across East Anglia, London and the UK navigate the challenges of business distress and liquidation. Whether your company is insolvent, solvent but no longer needed or you’re simply unsure what to do next, we’re here to help. We offer:
- Free, confidential consultations.
- Clear, jargon-free bespoke advice tailored to your situation.
- Recommend steps that can be taken to preserve the business and save jobs.
- Fast action to protect your personal position and reduce personal liability.
- Full support through CVLs, MVLs or alternative rescue options.
- Local and national expertise with offices across East Anglia, The Midlands, London and Southern England.
We understand how stressful this process can be, and we’re here to guide you every step of the way. If you’re worried about your company’s future, don’t wait. The sooner you act, the more options you’ll have. Contact our team today or book a free no no-obligation consultation.
Let’s find the right solution, together.
