A director can be personally liable under certain situations. Some of the examples are:
When a company has to borrow loans or engage in financial arrangement, it is very common for the lender to ask for a personal guarantee to be given by the director of the company in favour of the lender.
If the company doesn’t or is unable to repay the loans, creditors will be entitled to claim against the director for the outstanding loans payable by the company. The personal assets of the directors are at risk.
Fraudulent trading occurs where any business of the company has been carried on with the intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose. There must be an intention to defraud.
Directors may be subject to both civil and criminal liabilities if they engage in fraudulent trading.
Civil liability will only be applicable if the fraudulent trading becomes apparent in the course of the winding-up of the company.
The Court may make an order of declaration that the directors who were knowingly parties to fraudulent trading to be personally liable for all or any of the debts or other liabilities of the Company.
For criminal liability, it may be a fine and/or imprisonment term of up to 5 years. Criminal liability may apply whether or not the company is being wound up. Where the Court makes any declaration in connection with fraudulent trading, it may also make a disqualification order against the directors who were knowingly parties to the fraudulent trading.
Claims from shareholders
Directors may also be subject to claim from minority shareholders taken out on behalf of the company. The court can order a director to indemnify the company for its losses.
For legal advice or services on directors disputes, please contact CHOW & CHEUNG, Hong Kong Solicitors & Notary Public. [Tel: +852 2856 3799 Email: email@example.com]
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