If you are thinking of resigning as a company director, there are specific steps you and the company must take. Whether you are resigning due to ill-health or retirement, or other directors have asked you to resign, fulfilling your obligations in law is paramount.
On this note, if you are the sole director of the business you need to make sure a new director is in place before you resign, otherwise the company could be struck from the register at Companies House.
It is relatively straightforward to resign as the director of a limited company, but if the business should fail or face creditor legal action in the future, the issue of personal liability can come to the fore.
These are the main steps to take:
If the company experiences financial distress and enters insolvency after you resign, you remain liable for your actions and the decisions you made when you were a director. Should the company enter liquidation, the liquidator will look in hindsight over several years to uncover the reasons behind the business’ failure.
The actions of all directors who were in place during that time will be scrutinised. Only in specific circumstances could it become a problem, however, and there are generally no issues with personal liability for directors who resign.
So what are the circumstances that could lead to personal liability? Providing a personal guarantee for company borrowing is one, and being viewed as a ‘shadow’ director.
You are not liable for any decisions made following your resignation if you have no further input to the company, but some directors continue to hold influence even after they have resigned. This is known as being a shadow director.
If you are regarded as a shadow director and the business experiences financial distress, you may face liability issues - shadow directors can be investigated in the same way as active directors.
Personal guarantees are commonly required by lenders when businesses seek funding. If you have provided a personal guarantee for company borrowing, it remains in place following your resignation.
Should the business fail to keep up repayments on a loan that you have personally guaranteed, the lender will activate the guarantee. Even if you are no longer a director, they will expect the full amount of the guarantee to be repaid.
Resigning as a director typically means you no longer influence the company’s financial status, and with a guarantee still in place, you may be open to financial uncertainty on a personal level. Depending on your relationship with the company, you may not even realise the business is experiencing financial problems.
Resigning as a company director is a straightforward process in a practical sense, and in the majority of cases there are no issues going forward. If you would like more professional advice and guidance on resigning as a company director, please contact our partner-led team at Begbies Traynor Group. We can offer you a free, same-day consultation, and operate an extensive network of local offices throughout the UK.
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