Director Liability After a Winding Up Petition: Are You at Risk?

When a company faces a winding up petition, the immediate concern is often the survival of the business. However, directors must also consider their personal exposure. Under UK insolvency law, a winding up petition does not just threaten your company’s future, it can trigger personal liability, disqualification, and even civil or criminal consequences for directors if their conduct falls short of the legal standard.

Understanding when and how director liability arises is critical. This guide explains what risks directors face after a winding up petition is issued, how these risks are investigated, and what steps you must take to protect yourself.

How Winding Up Petitions Affect Directors

A winding up petition is a formal court application by a creditor seeking the compulsory liquidation of a company that cannot pay its debts. If the petition is successful, the company’s assets are sold to satisfy creditors, and the business ceases to exist as a legal entity.

Once the petition is presented, the directors’ responsibilities change dramatically. In normal trading conditions, a director’s primary duty is to act in the best interests of the company and its shareholders. However, if the company is insolvent or likely to become insolvent, those duties shift towards protecting creditors. Ignoring this change in duty exposes directors to personal legal risk.

Even before a winding up order is made, the mere existence of a petition triggers scrutiny of directors’ conduct. Actions taken from the moment of insolvency, or sometimes earlier, can later be examined by the Official Receiver or a liquidator. If they determine that directors failed in their duties, personal financial consequences can follow. Therefore taking urgent legal advice from experienced winding-up petition defence solicitors and barristers is imperative.

Wrongful Trading and Personal Financial Risk

One of the most common risks for directors is wrongful trading, which occurs under section 214 of the Insolvency Act 1986. This happens when directors continue to trade while knowing, or while they ought to have known, that there was no reasonable prospect of avoiding insolvent liquidation.

For example, if directors continue to incur credit, accept deposits, or delay taking professional advice while the company is insolvent, a liquidator may apply to the court to make them personally contribute to the company’s debts. Unlike fraudulent trading, wrongful trading does not require intent to deceive, poor judgment and inaction are often enough to trigger liability.

The risk intensifies once a winding up petition is served. From that point forward, any decision to continue trading, pay one creditor over another, or move company assets will be carefully examined in hindsight.

Fraudulent Trading: The Most Serious Risk

Fraudulent trading, under section 213 of the Insolvency Act 1986, arises when a company carries on business with intent to defraud creditors or for a fraudulent purpose. This is a more serious allegation than wrongful trading because it involves deliberate misconduct.

Examples of fraudulent trading can include:

• Taking payments from customers knowing the company cannot fulfil orders
• Moving assets to connected parties to avoid creditor claims
• Concealing the true financial position from lenders or suppliers

Fraudulent trading is both a civil and criminal offence. Directors found liable can face unlimited personal financial liability, disqualification of up to 15 years, and even imprisonment in extreme cases.

Misfeasance and Breach of Duty

Directors also face the risk of misfeasance proceedings, which involve claims that they misapplied company money or breached their fiduciary duties.

This could arise where directors:

• Used company funds for personal benefit
• Transferred company assets at undervalue to connected parties
• Allowed the company to pay some creditors in preference to others

A liquidator can bring a misfeasance claim in the winding up process, and the court can order directors to repay or contribute to the company’s assets if misconduct is proven. Our expert insolvency and director defence lawyers can advise you on defending misfeasance claims, reducing your risk of personal liability, and protecting your financial position.

Director Disqualification and Investigations

When a winding up order is made, the Insolvency Service automatically investigates the conduct of all directors. If the investigation identifies misconduct or “unfit” behaviour, the Secretary of State can bring proceedings under the Company Directors Disqualification Act 1986.

Disqualification can last 2 to 15 years, preventing directors from acting as a company director or taking part in company management during that period. Grounds for disqualification include:

• Trading to the detriment of creditors while insolvent
• Persistent non-payment of HMRC liabilities
• Failure to keep proper accounting records or file returns
• Misuse of company funds or assets

In addition to disqualification, directors can also face personal contribution orders, further increasing their financial exposure. Our solicitors can advise you on minimising this risk, responding to investigations, and protecting your personal position if disqualification or contribution proceedings are threatened.

HMRC and Personal Liability

Directors should pay close attention to company tax liabilities, particularly if a winding up petition involves HMRC debts. HMRC can take an aggressive stance in cases of unpaid VAT, PAYE, NIC or Corporation Tax.

In certain cases, HMRC may pursue Personal Liability Notices (PLNs) against directors where they believe there has been deliberate non-payment or neglect. For repeat offenders, joint and several liability notices may also be issued, meaning directors could be held personally responsible for the company’s tax debts.  Our experienced team offer tailored solutions for directors facing HMRC enforcement actions

How Directors Can Protect Themselves

If your company has been served with a winding up petition, taking immediate, strategic action is the best way to reduce your personal risk. Directors should:

• Seek urgent legal advice from an expert insolvency & winding-up petition lawyer.
• Cease any high-risk trading activities until you receive professional advice from an experienced solicitors on what is legally permissible.
• Maintain full financial transparency, ensuring all company accounts, records, and decisions are properly documented.
• Consider formal insolvency procedures, such as administration or a Company Voluntary Arrangement (CVA), to protect creditors and demonstrate responsible conduct.
• Engage proactively with the liquidator or Official Receiver if a winding up order is made, as cooperation can significantly mitigate the risk of disqualification or personal contribution orders.

Acting swiftly is crucial. Delay or inaction often results in the loss of control and increased scrutiny of directors’ decisions, which can have lasting personal consequences. At LEXLAW, we specialise in defending directors from any potential claims that can arise out of a winding-up petitions.

Why Immediate Advice Matters

Once a winding up petition is served, every decision you make as a director can be reviewed by a court or liquidator. Acting early provides the best chance to protect your personal position, prevent wrongful trading claims, and explore rescue options for the company.

We are a specialist City of London comprised of highly experienced Solicitors & Barristers, based in the Middle Temple Inns of Court. 

Our team are leading experts in insolvency and winding up petitions, with unparalleled success in both issuing and defending petitions vigorously at the Royal Courts of Justice (Rolls Building), as well as in the relevant High Court District Registries or County Courts with Insolvency Act jurisdiction.

For expert legal advice and representation, Contact us today for on ☎ 02071830529 | ✉ [email protected]