Can Directors Become Personally Liable When Their Company Faces Winding Up?

A creditor serves a statutory demand on the company and the directors immediately ask a second question: "If the company is wound up, can they come after me personally?"

The starting point is important. A debt owed by a company is not automatically a personal debt of its directors. Winding up the company does not, by itself, erase separate corporate personality.

But that is only the starting point. Personal guarantees, fraudulent trading, statutory misconduct and other independent legal obligations can create personal exposure in particular cases.

Does a winding-up petition automatically make directors liable?

No. The petition is ordinarily directed at the company. The creditor must still identify a separate legal basis if it wants to hold a director personally responsible.

That distinction prevents two common mistakes. Directors should not panic and assume every company liability has become theirs. They also should not assume incorporation protects every act they take while the company is under financial stress.

What if a director signed a personal guarantee?

That is a separate contractual question. If a director guaranteed the company's obligations, the creditor may have rights under the guarantee regardless of the fact that the principal debtor is a company.

The guarantee should be read carefully. Scope, conditions, demand requirements, amendments to the underlying facility, releases and other contractual facts may affect the position.

For directors, the key point is that personal liability under a guarantee does not arise simply because of the winding-up petition; it arises from the separate undertaking the director gave.

What is fraudulent trading under section 540?

Section 540 of the Companies Act 2016 addresses a different problem. Where, in the course of winding up or proceedings against a company, it appears that business has been carried on with intent to defraud creditors or for a fraudulent purpose, the Court may declare a person who was knowingly a party to that conduct personally responsible for debts or liabilities to the extent the Court directs.

This is not ordinary business failure. The statutory focus is fraudulent intent and knowing participation.

In April 2026, the Court of Appeal in City Properties Sdn Bhd v Jalex Sdn Bhd revisited section 540 and described its civil function as a mechanism for personal accountability where the statutory fraudulent-trading requirements are made out.

Does continuing to trade while financially stressed amount to fraud?

Not automatically. A company can face genuine financial difficulty without its directors acting fraudulently.

The risk increases where the evidence supports dishonest conduct: for example, deliberately incurring liabilities through a business being carried on to defraud creditors, moving value to defeat creditors, or making representations about payment or performance that the decision-maker knows are dishonest.

The exact facts matter. A director's knowledge, purpose, contemporaneous records and the commercial basis for decisions can become central.

Why do accounting records matter?

Winding up can place historical conduct under a microscope. The Companies Act contains separate provisions dealing with proper accounting records and the accountability of officers.

Directors should therefore preserve—not rewrite—the contemporaneous record: management accounts, bank statements, creditor schedules, board papers, cash-flow forecasts, contracts, payment approvals and correspondence. Good records do not create a defence to wrongdoing, but missing or unreliable records can make it much harder to explain legitimate decisions.

What should directors avoid after a petition is filed?

Do not treat company money as though it has become available for informal preference, related-party extraction or last-minute asset movement. Post-petition dispositions can also engage section 472 of the Companies Act 2016.

Our separate article on whether a company can keep trading after a petition focuses on that operational issue. Until that article is live, the broader petition process is covered in our guide to what happens after a winding-up petition is filed.

What evidence should each director preserve?

• board minutes and written resolutions;

• cash-flow forecasts and management accounts used for decisions;

• bank and financing correspondence;

• creditor communications and settlement proposals;

• documents showing why material payments or transactions were approved;

• personal guarantees or indemnities; and

• records showing who knew what, and when.

The point is not to create a defensive paper trail after the event. It is to preserve the record that already exists and understand what it shows.

The legal and commercial questions are different

The legal question is whether there is a specific basis for personal liability: a guarantee, fraudulent trading, statutory breach or another independent cause of action.

The commercial question is how the board should manage the company now. A director can be legally separate from the company's debts while still needing to make careful decisions about cash, transactions, creditor communications and the future of the business.

That is why directors should not wait for the winding-up hearing before examining their own position.

This article is for general information only and does not constitute legal advice. Every transaction and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

Legal That Works' Winding-Up Petition Defence and Representation service is intended to assess the petition, the company's evidence and the related director-level risks and decisions. The verified public Service link and service-specific HubSpot form will be inserted once deployed.