What are my duties as a director if the company is struggling?

Do my duties change when the company is in difficulty?

The duties themselves do not disappear, but the focus of them moves. While a company is trading comfortably, a director's job is to run it for the benefit of its shareholders. When it is struggling to the point of insolvency, the people whose money is most at risk are the creditors, and the law expects directors to take that into account.

GOV.UK's director information hub sets this out in its page on director duties upon insolvency. It says that if your company becomes insolvent, a director's priorities shift from the shareholders to the company creditors. It defines insolvency in two ways: being unable to pay bills when they become due, or having debts larger than the value of the company's assets.

A company can be in difficulty without being insolvent. The point at which a company becomes insolvent is not always obvious, which is why GOV.UK's two tests are worth checking against your own figures regularly.

What do the general duties say?

The hub's page on general director duties explains that the full list is in the Companies Act 2006, and picks out the key ones in plain English. Directors must act within their powers, use independent judgement, avoid conflicts of interest and exercise reasonable care, skill and diligence. That last duty is judged by what a reasonably conscientious person would do in the same role, taking into account both the role itself and your own knowledge and experience.

The duty to promote the success of the company is where creditors come in. The Act's wording on promoting the success of the company asks directors to act in the way they consider, in good faith, would be most likely to promote its success for the benefit of its members as a whole. It then adds that this duty has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors.

GOV.UK puts the same point more simply: the duty also requires you to act in the interest of creditors if you are insolvent.

What does GOV.UK say directors of an insolvent company must do?

The insolvency page gives a short list.

What GOV.UK says you must do	What it looks like in practice
Protect any assets the company has	No selling equipment cheaply, moving stock out or letting assets drift without a clear reason
Treat all creditors the same	No paying one supplier in full because they shout loudest while others wait
Make sure the company does not worsen the financial position of creditors	Thinking carefully before taking on new credit or orders the company may not be able to fulfil
Consult with or consider appointing an insolvency practitioner	Getting regulated advice on the options rather than waiting to see what happens

The same page also says that directors of an insolvent company still have duties and responsibilities, including minimising the amount of money owed by the company that will not be repaid.

What is wrongful trading, in general terms?

Wrongful trading is one of the situations GOV.UK lists where a director can become personally liable. The page is careful to say that directors are not normally personally responsible for company debts, and that personal liability arises where a director has been responsible for the company being mismanaged.

The rule itself is in the Insolvency Act, in its provision on wrongful trading. In broad terms, it applies where a company has gone into insolvent liquidation and a director knew or ought to have concluded, at some earlier point, that there was no reasonable prospect of the company avoiding insolvent liquidation or insolvent administration. The liquidator can then ask the court to order that director to contribute to the company's assets.

The same section contains a defence. The court will not make that order if it is satisfied the director took every step with a view to minimising the potential loss to the company's creditors that they ought to have taken. Whether that applies to any individual is a question for a solicitor or insolvency practitioner, not for a blog post.

What the provision shows clearly is what the law values: noticing the problem, and then acting to protect creditors from that point on.

Why do directors get this wrong?

One misunderstanding is that limited liability means a director can never be affected by how the company is run. GOV.UK's own wording, that directors are not normally personally responsible for company debts, carries the word normally for a reason.

Another is believing the right thing is to keep trading at all costs and hope the next contract turns things round. Sometimes it does. When there is no realistic prospect of that, carrying on can add to what creditors lose, and that is exactly what the law asks directors to watch for.

A third is handling creditors by instinct. Paying whoever presses hardest, or a supplier the director has a personal connection with, can feel like keeping the business alive. GOV.UK's guidance says directors of an insolvent company must treat all creditors the same and cannot prioritise one over another.

What practical steps help a director show they acted properly?

Keeping good records is a legal duty in any case. GOV.UK's guide to running a limited company lists keeping company records among a director's responsibilities, and notes that you are still legally responsible for the company's records, accounts and performance even if you hire someone else to manage some of these things.

When things are difficult, these habits help:

1. Keep up to date management figures and a cash forecast, and look at them regularly as a board.
2. Hold board meetings and write down what was discussed, what was decided and why, including any advice you took.
3. Write down when you first had concerns and what you did about them.
4. Once the company is insolvent, do not pay connected people or favoured creditors ahead of others, and take advice before deciding who to pay if you are unsure where the company stands.
5. Take regulated advice early, and record that you did.

None of this decides any particular result. It does mean that if anyone later asks what the directors knew and did, there is a clear answer.

When is this not the answer?

This post explains the general position. It cannot tell you whether your company is insolvent, whether you have met your duties, or whether you face any personal liability. Those questions depend on the facts and need regulated advice.

If you think the company may be insolvent, speak to a licensed insolvency practitioner. GOV.UK lists consulting with or considering appointing one among a director's responsibilities at that point. If you are worried about your personal position, speak to a solicitor. An accountant can help you get the figures in order so that both conversations are better informed.

If the company is under strain but clearly able to pay its bills as they fall due, the general duties still apply as they always have, and the priority is usually to stabilise cash and plan.

Where can you talk this through in confidence?

It is hard to think clearly about duties while also running the business. A calm, structured look at the figures and the decisions ahead can help.

If that would be useful, you can book a confidential consultation. We can help you organise the information, prepare for conversations with regulated advisers and plan the practical steps in a sensible order. You can read more about our business recovery work.