Liability of directors FAQs
As new legislation has greatly increased the reasons for which company directors can be held personally liable over the last few years, we thought it would be a good idea to make a very brief list of the most frequently asked questions concerning this matter. We say brief, because in this post we are only concerned with commercial law and are not going to go into possible personal liability in other areas of law such as criminal, environmental, employment, insolvency, data protection, competiton, tax and so on.
Personal liability, with regards to commercial law, means that the director will have to pay the debts of the company, or the losses it has caused, from their own assets. Faced with large amounts, this could even lead to social exclusion and mean they would be unable to have anything else in their name for the rest of their lives without running the risk of seizure.
For this reason we would ask you to read this post carefully and if you have any doubts to please get in touch with us.
1. IS IT NORMAL FOR COMPANY DIRECTORS TO BE HELD PERSONALLY LIABLE FOR THE DEBTS OF THE COMPANY? It is all too common. Over the years legislation has drastically increased the personal liability attached to company directors.
2. IF THE COMPANY HAS DEBTS AND I DO NOTHING, CAN I AS DIRECTOR BE OBLIGED TO PAY THEM PERSONALLY? Yes. If the company is in the process of dissolution and, in the extremely short space of 2 months from when it cannot meet its payment obligations, it does not raise or reduce capital for its losses, wind up the company or instigate insolvency proceedings, it is very likely that the Judge will declare the director personally liable.
3. WHAT IS THE MOST COMMON CAUSE OF DISSOLUTION INCURRING PERSONAL LIABILITY? Company losses. Legal dissolution occurs when, with non offset losses, the net assets do not cover half the amount of issued share capital and the director does not react by calling a general meeting.
4. WE ARE A BOARD OF DIRECTORS, DO WE ALL HAVE THE SAME PERSONAL LIABILITY? All members of the governing body are jointly and severally liable, except those who can prove that, not having intervened in the adoption and execution of the agreement, they were unaware of its existence or, if they were aware, did everything necessary to avoid losses or, at least, expressly opposed the agreement.
5. WHAT HAPPENS IF I AM DECLARED LIABLE AND I DON’T OWN ANYTHING TO PAY WITH? Both present and future assets in your name can be seized. These could include, for example: your paycheck, house, bank accounts, car, etc
6. WHAT TIME PERIOD EXISTS FOR CLAIMING A DIRECTOR’S LIABILITY? It depends on the subject matter and what they are being declared liable for. When in doubt, get advice immediately.
7. CAN A PERSON WITH POWER OF ATTORNEY BE LIABLE? YES, especially if they have wide ranging powers and the company has started insolvency proceedings. They could be declared de facto manager of the company and be forced to assume personal liability.
8. WHO CAN CLAIM THAT I AS THE DIRECTOR AM LIABLE FOR DEBTS?
b. The company itself
c. The shareholders
If you are the director of a company you need ongoing professional advice. Our experience shows us that directors are still not sufficiently aware of the situation. The price you pay for being a director and not being properly advised is far too high. You can lose all your assets and this happens far more often than you would think.
For futher information, please contact email@example.com or +34 93 444 11 66
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