This article is for company directors in Ireland who want to understand when they could be held personally liable for company debts.If you're worried about reckless trading, personal guarantees, tax liabilities, or other situations where limited liability protection doesn't apply, this guide covers the specific circumstances that put your personal assets at risk and how to protect yourself.
Key Takeaways
• Directors face personal liability for company debts if they continue trading while knowing the company cannot pay creditors.
• Personal guarantees override limited liability protection, making you liable for company debts even after resigning as director.
• Revenue can pursue directors personally for unpaid PAYE, PRSI, VAT, and other company taxes under Section 1001.
• Maintain complete accounting records and cooperate with liquidators to avoid five-year director restriction orders following insolvency.
• Directors and Officers insurance typically excludes fraud, personal guarantees, tax liabilities, and most insolvency-related claims from coverage.
Can I be held personally liable for my company's debts even with limited liability protection?
Yes, limited liability protection has significant exceptions in Irish law. You can face personal liability through reckless or fraudulent trading, personal guarantees you've signed, unpaid company taxes, or breaches of director duties that cause company losses.
What exactly is reckless trading and when does it apply to me?
Reckless trading occurs when you allow your company to incur debts while knowing it cannot pay them. Courts examine whether an honest and reasonable person would conclude the company was likely insolvent, and whether you took reasonable steps to minimize potential loss to creditors.
Will I automatically be liable if my company continues trading while insolvent?
No, continuing to trade while insolvent doesn't automatically constitute reckless trading. You must show you took reasonable steps to minimize potential loss to creditors, and courts consider what you specifically knew or should have known about the company's financial position.
What happens if I'm found liable for reckless trading?
Courts can make you personally liable for all or part of company debts incurred during the reckless trading period. If there are multiple directors, you may share liability jointly and severally, meaning each director can be pursued for the full amount, potentially leading to personal bankruptcy.
Can Revenue pursue me personally for my company's unpaid taxes?
Yes, Revenue can issue personal liability notices making you jointly and severally liable for unpaid PAYE, PRSI, VAT, and other company taxes. Directors who signed relevant tax returns or were acting directors when tax became due face higher liability risk, though courts may excuse you if you took all reasonable steps to ensure payment.
Do personal guarantees remain valid after I resign as a director?
Yes, personal guarantees typically remain valid even after you resign as director. Banks almost always require these for loans to small companies, and landlords frequently demand them for commercial leases, making you personally liable for the full amount if the company defaults.
What's the difference between director restriction and disqualification?
Restriction (lasting five years) allows you to serve as director only in companies with minimum €63,500 paid-up share capital or where you provide personal guarantees, typically following insolvency with poor record-keeping. Disqualification absolutely prevents any company management involvement and applies to serious misconduct like fraud, persistent breaches, or being restricted twice.
Can I be treated as a director even if I was never formally appointed?
Yes, you can be classified as a "shadow director" if the board habitually follows your instructions. Significant shareholders who control decisions, advisors whose directions the board routinely implements, or former directors who continue exercising control after resignation all risk shadow director classification and face the same liabilities as appointed directors.
Does Directors and Officers insurance protect me from all director liabilities?
No, D&O insurance typically excludes fraud, deliberate wrongdoing, fines, personal guarantee liabilities, and often tax liabilities and insolvency-related claims. Cover only applies to claims made during the policy period, and defence costs often count toward policy limits, so you should review policy terms carefully.
What records should I keep to protect myself from personal liability claims?
Keep minutes of all board meetings showing decisions made, written reports supporting major decisions (especially regarding solvency), correspondence with professional advisors, and all financial statements and cash flow projections. Record dissenting views when you disagree with board decisions and maintain personal copies of key documents in case company records disappear.
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