Director

Catey_2

Hi

I've been asked to be a director os a CIC company, and have been reassured that I'll have no financial liability regarding this.

However, will this have any impact at all on my credit score if the company goes under?

Thanks x

System

It can do and not only affect your credit record but leave you personally financially liable for paying some or all of the company debts. It all depends on how the company was run as to whether directors can be held liable. For example knowingly continue to trade when insolvent opens up the directors to liability.

Although the directors of a limited company are not normally held liable for the debts of the company, occasionally the courts - on behalf of the creditors - can deem one or more of the directors liable for the company's debts during a formal insolvency procedure.

Once a company has become insolvent because its debts and creditors are greater than its assets, the directors of the company have a statutory duty in their capacity as directors to act in the best interests of the company's creditors as a whole. The directors must be able to demonstrate that they have done everything possible under their control to ensure the repayments of all creditors using the company's resources.

The directors cannot deliberately take any actions that would cause the company's debts to increase or go unpaid. (This is usually where directors make themselves liable by for example continuing to order from suppliers even though they know the company is insolvent.)The directors should not show any favouritism towards particular suppliers or creditors. If a director fails to meet his or her fundamental duties of acting in the interest of all the company's creditors whilst trading insolvent, they are likely to face severe personal liabilities and disqualification from acting as a director of a limited company in the future.

Directors also have a responsibility to ensure that their managers, shareholders, employees or anyone else that actively participates in the control of the company do not perform any actions that would be to the detriment of the company's creditors.

Instances in Which a Director Could Be Held Liable For Company Debts

Directors' personal liabilities for company debts can be proved if it can be shown that they performed any inappropriate actions:

• Continuing to pay shareholders dividends whilst the company is insolvent

• Using fraudulent methods to raise the funds needed to repay creditors (i.e. – obtaining financing using misleading or inaccurate information, or collecting payment for goods or services that could not be delivered)

• Withdrawing and/or using company funds for non-business activity; this is an offence known as misfeasance

• Entering into a personal guarantee and then breaching its terms

• Disposing of the company's assets at undervalue or no value

• Overpaying yourself from your company; creating a large overdrawn directors' loan account. This will be repayable during an insolvency process as the money is deemed an asset of the company.

1 is liable to happen if directors are paying themselves via dividends to lower their personal tax bill. 5 is often something that happens as the company has a fire sale to try to raise funds to keep going.

In short whoever told you that there is no risk of personal financial liability was lying.

Catey_2

Does being a non exec director change this, do you know? It's a CIC companny

DCFC79

Just to say your credit score is only seen by you, lenders see your credit file so what accounts are open eg are you up to date with your phone/internet contract or are you behind etc.