The general rule in commercial contractual relationships is that if a limited company is the contracting party, then the directors of that company cannot be liable. If one party to the contract suffers loss or damage as a result of a breach of contract then they sue the other company with a view to enforcing against the company’s assets in the event of ongoing non-payment.
This can be a frustrating experience for the wronged party, because they know that the director of the company may own a big house, have lots of personal effects and have a sizeable bank balance. However, the company’s assets may consist of two chairs and a table. If the wronged party sue the company, the best that it can hope for is the sale proceeds from the sale of the chairs and table. That is simply unfair, surely…… It is unfair morally but legally the default position is as above.
The “bad” director may think that he/she is safe in the knowledge that the limited liability status of the company will protect them. However, that is not always the case. There are instances where directors do become personally liable for the actions of the company. However, these instances can be few and far between. If the “bad” company is insolvent, as would be the case if it could not pay a judgment debt against it, then the subsequent liquidator or administrator of the company can take action against the directors. Alternatively, in some cases the wronged party may have grounds to sue the directors directly, but these case are often difficult to bring and involve some a significant element of, almost criminal, wrongdoing by the director.
However, if someone thinks that the presence of a limited company will automatically grant them immunity from legal action, then they may have to think again.
Please contact me, Nick Stockley, if you have any issues with the liability of a company.
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