Directors' Duties Explained: What Happens If You Breach Them
Prepared by Benjamin Rose, Solicitor, on behalf of Acumen Law's Dispute Resolution Team
Last Reviewed: 12 November 2025
Directors owe statutory duties under the Companies Act 2006. Breaches can result in personal liability, disqualification for up to 15 years, and criminal prosecution. This guide explains when directors become personally liable and what steps to take.
If you breach your duties as a company director, you can be required to compensate the company, repay misapplied assets, or account for profits; you may be made personally liable to contribute to the company's assets in insolvency (for wrongful or fraudulent trading), forced to unwind transactions, disqualified from acting as a director for up to 15 years, and in serious cases prosecuted for criminal offences. Remedies can be sought by the company, shareholders (via derivative claims), insolvency office-holders, regulators and - where applicable - law enforcement.
The framework: the general duties under UK law
Directors owe statutory "general duties" to the company under the Companies Act 2006: act within powers (s171); promote the success of the company (s172); exercise independent judgment (s173); exercise reasonable care, skill and diligence (s174); avoid conflicts of interest (s175); not accept benefits from third parties (s176); and declare interests in proposed transactions (s177). Duties are supplemented by sections 178–182 (including declarations for existing transactions under s182). These duties also apply to shadow directors where and to the extent capable of applying (s170(5)).
When a company is insolvent, bordering on insolvency, or insolvency is probable, directors must give proper weight to creditors' interests when performing s172. The Supreme Court in BTI 2014 LLC v Sequana SA [2022] UKSC 25 rejected a mere "real risk" trigger and confirmed the duty arises when insolvency is imminent or probable.
Am I personally liable?
Personal exposure depends on context; the main routes are:
Misfeasance / breach of duty (insolvency). In liquidation or administration, the court may order a delinquent director to repay, restore or account for company money or property, or contribute compensation (Insolvency Act 1986, s212).
Wrongful trading. If, before insolvent liquidation/administration, a director knew or ought to have concluded there was no reasonable prospect of avoiding insolvency and did not take every step to minimise loss to creditors, the court may order a personal contribution (Insolvency Act 1986, s214). (Civil liability; not a crime.)
Fraudulent trading. Civil: Under the Insolvency Act 1986, s213 permits orders requiring any person knowingly party to carrying on the business with intent to defraud or for a fraudulent purpose to contribute to the company's assets. The Supreme Court in Bilta v Tradition [2025] UKSC 18 confirmed s213 is not confined to managers - third parties who knowingly participate may be liable. Criminal: Under the Companies Act 2006, s993 creates an offence of fraudulent trading.
Unlawful distributions / dividends. Distributions are only lawful out of profits available for the purpose (Companies Act 2006, s830 and Part 23). Directors who authorise unlawful dividends can be liable to restore sums, regardless of solvency (e.g., Bairstow v Queens Moat Houses [2001]).
Antecedent transactions (twilight-zone dealings). Liquidators/administrators can challenge transactions at an undervalue (Insolvency Act 1986, s238; look-back typically two years) and preferences (s239; six months, extended to two years for connected persons). The Supreme Court in El-Husseiny v Invest Bank [2025] UKSC 4 confirmed the broad reach of s423 of the Insolvency Act 1986 (transactions defrauding creditors), including where a debtor procures transfers via a company they control.
Disqualification and compensation. For unfit conduct, courts can disqualify a director for 2–15 years (Company Directors Disqualification Act 1986, esp. s6). Following disqualification, the court can impose compensation orders for creditor losses (Company Directors Disqualification Act 1986, s15A).
Criminal and regulatory offences. Breaches may expose directors to offences such as fraudulent trading (Companies Act 2006, s993), failure to keep adequate accounting records or failure to file accounts (Part 15 Companies Act 2006, incl. ss386–389, 451). Separate regimes (e.g., Bribery Act 2010 s7 "failure to prevent bribery"; with s14 personal liability for consent/connivance) and the ECCTA 2023 "failure to prevent fraud" (in force 1 September 2025 for large organisations) create corporate exposure and potential director ramifications.
Veil-piercing is exceptional. Personal liability by piercing the corporate veil is rare and confined to narrow circumstances (the "evasion" principle) per Prest v Petrodel [2013] UKSC 34.
What counts as a breach? (with examples)
Conflict and corporate opportunity (Companies Act 2006, s175): exploiting a maturing business opportunity without fully informed authorisation (e.g., CMS Dolphin Ltd v Simonet [2001] EWHC Ch 415).
Acceptance of benefits (Companies Act 2006, s176): undisclosed advantages from third parties (e.g., Towers v Premier Waste Management Ltd [2011] EWCA Civ 923).
Duty to promote success and loyalty (Companies Act 2006, s171): a director may be required to disclose their own wrongdoing where necessary for the company's interests (e.g., Item Software v Fassihi [2004] EWCA Civ 1244).
Improper dividends: authorising distributions without sufficient profits.
Negligence (Companies Act 2006, s174): failing to read and understand a critical document (see Re D'Jan of London [1994] 1 BCLC 561).
Financial distress decisions: paying connected creditors ahead of others (potential preference; Insolvency Act 1986, s239), asset transfers for less than value (Insolvency Act 1986, s238), continuing to trade with no realistic turnaround (Insolvency Act 1986, s214).
What should I do right now?
Stop, record, and triage. Pause any transaction that might be conflicted, a distribution, or a related-party deal. Convene a quorate board swiftly; minute s172 considerations and, if relevant, how creditors' interests are being addressed (per Sequana).
Manage conflicts properly. Make full declarations under s177 (proposed) or s182 (existing) and follow your articles' authorisation mechanics.
Solvency "twilight zone". Move to short-interval cash-flow forecasting. Halt dividends and non-essential disposals; take every step to minimise creditor losses. Obtain early advice from insolvency practitioners if viability is in doubt. If you receive a letter before action alleging breach of duty or wrongful trading, instructing solicitors immediately can materially affect your exposure - particularly in preserving defences under s1157 and demonstrating "every step" mitigation.
Do I need a solicitor?
Independent advice is warranted when: (i) any conflict or corporate opportunity is in play; (ii) dividends or intra-group transfers are contemplated; (iii) insolvency is probable or you are in covenant breach; (iv) you receive a s994 unfair prejudice threat, a derivative claim letter (ss260–264), or an Insolvency Service/CMA enquiry; (v) you face potential disqualification or compensation order proceedings.
Acumen Law's commercial litigation team advises directors facing breach allegations, wrongful trading claims, and disqualification proceedings. For a confidential discussion of your position, contact Benjamin Rose on 01273 447 065 or benjamin.rose@acumenlaw.co.uk.
Key takeaways
Directors' duties are owed to the company, flexing toward creditor interests in distress.
Personal liability is real: misfeasance, wrongful/fraudulent trading, unlawful dividends, and disqualification/compensation orders are all live risks.
Good governance, solvency vigilance, conflicts hygiene, and early advice materially reduce exposure.
Large organisations face enhanced corporate criminal risk under ECCTA (FTP fraud); directors should drive compliance.
About the author
Benjamin Rose, Solicitor
Commercial Litigation | Acumen Law
Brighton & Hove
Benjamin advises company directors, shareholders and insolvency practitioners on directors' duties disputes and wrongful trading claims. He acts for both applicants and respondents in High Court and County Court litigation.
For an initial assessment: 01273 447 065 | benjamin.rose@acumenlaw.co.uk | Book consultation
