Director personal liability in business borrowing

The default: you're protected

The whole point of a limited company is that its debts are its own. If the business can't pay, creditors look to the company's assets, not yours — your house, savings and personal accounts sit behind a legal wall. For the great majority of company borrowing, that protection holds firmly. The exceptions are specific, and mostly avoidable.

The big crack: personal guarantees

The most common way directors lose that protection is by choice — signing a personal guarantee. Many lenders make it a condition, and a signature turns company debt into your own. If the business defaults, they come for you. This is entirely avoidable: Credicorp lends to the company, not to you personally, and takes no personal guarantee. See how to avoid personal guarantees.

Wrongful and fraudulent trading

The other main crack is conduct near insolvency. Keep borrowing or trading when you knew the company couldn't avoid insolvent liquidation, and a court can order you to contribute personally — that's wrongful trading. Deliberate dishonesty is fraudulent trading, which is worse. The defence is simple in principle: act promptly and take advice the moment serious trouble is clear.

Unlawful dividends and overdrawn loans

Pay yourself dividends the company's distributable reserves can't support and you may have to repay them personally. Run up an overdrawn director's loan account and you owe the company directly. Both are personal exposures created by how you extract profit, not by borrowing — but they bite the same way. Extract carefully; see how directors extract profit.

How to keep debt off your back

Staying protected is mostly discipline: avoid personal guarantees, act early if the company struggles, keep dividends within reserves, keep the loan account tidy, and document decisions. Do that and limited liability does its job. Borrow on the company, and keep it there. Check affordability first with the affordability calculator.