Company Director Duties & Personal Liability Checker UK 2025
Company directors have significant legal duties under the Companies Act 2006 and insolvency law. Breach of these duties can result in personal liability, disqualification from acting as a director for up to 15 years, and even criminal prosecution. This checker helps you identify potential risks and understand your obligations.
Director duties apply to all directors including non-executive directors. Shadow directors (people acting as directors without formal appointment) also owe these duties. If the company is insolvent or near-insolvent, duties shift towards protecting creditors. Seek specialist insolvency and corporate law advice immediately if any risk factors apply.
The 7 Statutory Director Duties (Companies Act 2006)
| Duty | Section | What it means |
|---|---|---|
| Act within powers | s.171 | Act in accordance with the company’s constitution and exercise powers for proper purposes only |
| Promote success of the company | s.172 | Act in good faith to promote success for members as a whole, considering employees, suppliers, community, and environment |
| Exercise independent judgment | s.173 | Do not be directed by third parties; form your own view |
| Exercise reasonable care, skill and diligence | s.174 | The standard of a reasonably diligent person with your knowledge and experience in your role |
| Avoid conflicts of interest | s.175 | Avoid any situation where you have (or could have) a direct or indirect interest that conflicts with the company’s interests |
| Not accept benefits from third parties | s.176 | Do not accept benefits from third parties given because of your directorship or action/inaction as a director |
| Declare interest in transactions | s.177 | Declare to the other directors any interest in a proposed transaction or arrangement with the company |
When Duties Shift — The Insolvency Tipping Point
When a company is solvent, director duties under Companies Act 2006 are owed to the company (and through it, to shareholders). When a company becomes insolvent or is at serious risk of insolvency, the duties shift — directors must now have regard to the interests of creditors as a whole. This is reinforced by wrongful trading liability under insolvency law.
The key is identifying when the company reached the point of no reasonable prospect of avoiding insolvent liquidation. Directors who continue to trade beyond this point (increasing creditor losses) can be required to contribute personally to the company’s assets on liquidation.
Protecting Yourself — The “Every Step” Defence
The defence to wrongful trading is that the director “took every step with a view to minimising the potential loss to the company’s creditors.” In practice, this means: taking prompt professional advice (insolvency practitioners, solicitors, accountants); calling board meetings to formally consider the company’s position; minuting all decisions with reasons; ceasing to incur new credit once the position is clearly hopeless; and acting decisively to cease trading or enter a formal insolvency process when necessary.
Frequently Asked Questions
Possibly. Shadow directors — people whose instructions the board is accustomed to acting on — can owe director duties and face personal liability as if they were formally appointed. This commonly applies to major shareholders who “run” a company without formal appointment, or to parent company representatives who direct subsidiary board decisions. Seek advice if you are in any doubt about your status.
Resignation does not protect you from liability for actions taken while you were a director. A liquidator can look back 2 years for preferences and transactions at undervalue, and there is no time limit for fraudulent trading. Resigning without taking any action when you know the company is insolvent could itself be a breach of duty. If you are considering resignation because the company is in difficulty, take specialist advice first.