Can a director be held personally liable? Legal risks and practical considerations
In the current legal and economic climate, the role of the company director has become increasingly significant, accompanied by a substantial rise in the level of liability involved. Far from being a purely formal position, a director may find themselves personally liable for decisions taken—or not taken—in the course of their duties.
This reality necessitates a rethink of corporate management from a preventive and legally informed perspective.
Legal framework: directors’ liability
Directors’ liability is primarily governed by the Companies Act, notably:
- Section 225: duty of care
- Section 236: liability for damages
These provisions stipulate that a director must act with the diligence of a prudent businessman and a loyal representative.
When is the director liable with their personal assets?
The director may be held personally liable in various circumstances, including:
- Company debts arising from a breach of legal obligations
- Failure to file for insolvency proceedings within the prescribed time limit
- Continuation of business operations whilst insolvent
- Breaches of tax or employment obligations
In such cases, liability may extend directly to the director’s personal assets.
Liability for failure to act
One of the key developments in case law is the growing importance of liability for failure to act.
Failure to act in a risky situation may give rise to liability, even in the absence of any active unlawful conduct.
Key steps to reduce risk
To minimise exposure to personal liability, it is essential to:
- Document all relevant decisions
- Act in an informed manner and with professional advice
- Implement internal control systems
- Anticipate crisis scenarios
- Strictly comply with legal deadlines (particularly in insolvency)
Conclusion
The director is no longer a mere formal manager, but a person with significant legal exposure.
Prevention, control and specialist advice are essential to prevent corporate liability from extending to the personal sphere.
| RDL 01 2010 de 2 de Julio, Ley de Sociedades de Capital | 1013 KB |
