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Directors’ personal liability is a director’s exposure to claims, prosecutions and orders that must be met from their own assets rather than the company’s. Without D&O insurance, the director usually funds their own defence, and the law limits how far the company can step in.
Part of: Directors and officers insurance UK guide
In short
UK directors owe seven general duties to their company under sections 171–177 of the Companies Act 2006. They can be pursued personally by the company, by a liquidator for misfeasance, wrongful trading or fraudulent trading, by shareholders through derivative claims, by HMRC through personal or joint liability notices, by the HSE, and by the Insolvency Service seeking disqualification. A company can buy insurance for directors and indemnify some third-party claims, but it cannot indemnify a director against liability to the company itself, criminal fines or regulatory penalties. Without D&O, the director meets defence costs and any award personally.
Chapter 2 of Part 10 of the Companies Act 2006 sets out seven general duties that every director of a UK company owes, whether the company is a listed group or a two-person private company:
Under section 170(1) the duties are owed to the company, not to individual shareholders. Section 178 says the consequences of breach are the same as under the old common law and equitable rules, and all the duties except section 174 are enforceable like any other fiduciary duty. In practice that is what “mismanagement” and “breach of fiduciary duty” claims against directors rest on. Our guide to directors’ duties goes through each one.
Limited liability protects shareholders from the company’s debts. It does not stop a director being pursued for their own conduct.
Several parties can bring claims, prosecutions or orders against a director personally. The table summarises the main routes in England and Wales.
| Who | Route | Basis | Possible outcome |
|---|---|---|---|
| The company (often under new owners or a new board) | Claim for breach of duty | Companies Act 2006, ss.171–178 | Compensation and other civil remedies |
| Liquidator, official receiver or a creditor | Misfeasance | Insolvency Act 1986, s.212 | Repay, restore or account for money or property, or contribute to assets |
| Liquidator | Wrongful trading | Insolvency Act 1986, s.214 | Contribution to the company’s assets |
| Liquidator | Fraudulent trading | Insolvency Act 1986, s.213 | Contribution from anyone knowingly party to the fraud |
| Shareholders | Derivative claim on the company’s behalf | Companies Act 2006, ss.260–264 | Relief for the company, if the court gives permission |
| HMRC | Personal liability notice; joint and several liability notice | Social Security Administration Act 1992, s.121C; Finance Act 2020, Sch 13 | Personal liability for unpaid NICs, or for company tax liabilities |
| HSE and other prosecutors | Prosecution of an officer | Health and Safety at Work etc. Act 1974, s.37 | Conviction alongside the company |
| Secretary of State (Insolvency Service) | Disqualification and compensation orders | Company Directors Disqualification Act 1986 | Ban of up to 15 years; compensation to creditors |
A few points behind the table:
Wrongful trading. Section 214 applies where a company has gone into insolvent liquidation and, before then, the director knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation or administration. The court will not order a contribution if the director then took every step to minimise potential loss to creditors that they ought to have taken. The director is judged against a reasonably diligent person with the general knowledge, skill and experience expected of someone in their role, and their own knowledge, skill and experience.
Fraudulent trading. Section 213 applies where the business was carried on with intent to defraud creditors or for any fraudulent purpose. It reaches anyone knowingly party to it, not only directors.
Disqualification. Insolvency Service guidance explains that a disqualified person cannot act as a director or take part in managing a company without court permission, for up to 15 years. Breaching a ban is a criminal offence and can make the person personally liable for company debts incurred during the breach. Compensation orders can require a director to compensate creditors for misconduct after 1 October 2015. Our page on D&O and insolvency covers how cover works when a company fails.
A company cannot simply promise to cover its directors whatever happens. Section 232 makes void any provision exempting a director from, or indemnifying them against, liability for negligence, default, breach of duty or breach of trust in relation to the company, except as allowed by the sections that follow.
The practical gap is bigger than the legal one. The company may be insolvent, sold, or controlled by people who are suing the director. In each case an indemnity in the articles or a deed is worth little. That is the gap Side A of a D&O policy is designed to fill.
These scenarios are illustrative only.
Where D&O is in place, it commonly pays defence costs as they are incurred, covers investigations and covers breach of duty, neglect and similar “wrongful acts”, subject to the policy terms. Common exclusions include proven dishonesty or fraud (often only once established by a final judgment), fines and penalties that are uninsurable by law, and prior or pending matters. See D&O defence costs and investigations cover, the dishonesty exclusion and how some wordings treat an insolvency exclusion.
Yes. Limited liability protects shareholders from company debts, but directors can be personally liable for breach of their duties, wrongful or fraudulent trading if the company becomes insolvent, misfeasance, certain unpaid tax and NICs, and health and safety offences committed with their consent, connivance or neglect. They can also be disqualified for up to 15 years.
D&O policies commonly cover claims alleging breach of duty, neglect, error or similar wrongful acts in managing the company, including breach of fiduciary duty, and pay defence costs as they arise. Cover is subject to the policy terms, and dishonesty, fraud and deliberate wrongdoing are commonly excluded once established. Check how your wording defines a wrongful act.
Partly. Under section 205 of the Companies Act 2006 the company can fund defence costs, but you must repay them if you are convicted, judgment goes against you or the court refuses relief. Under section 234 it can indemnify third-party claims, but not fines, regulatory penalties or claims brought by the company itself that you lose.
Under section 214 of the Insolvency Act 1986, a liquidator can ask the court to order a director to contribute to the company’s assets if, before insolvent liquidation, they knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation or administration and did not take every step they should have to minimise creditors’ losses.
A shareholder can bring a claim on the company’s behalf for a director’s negligence, default, breach of duty or breach of trust under sections 260–264 of the Companies Act 2006, which apply in England, Wales and Northern Ireland. The shareholder must get the court’s permission to continue the claim, and any recovery goes to the company.
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Get a quote Start a commercial enquiryApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
