Are You Personally Liable for Business Debts? UK Director’s Guide 2025

The Corporate Veil: Your Shield as a Director

Limited liability offers important peace of mind for UK company directors. Generally, you, as a director, won't be personally responsible for your company's debts. Remember, the company is a separate legal entity from you, that's a key principle of UK company law.

Recent 2025 statistics show that:

• Directors are usually protected from personal liability for corporate debts because of the limited liability structure.
• The typical UK SME director currently faces a potential personal liability of £194,499 due to personal guarantee demands.
• In Q2 2025, 45% of business loans were unsecured, indicating that personal guarantees are becoming more widespread.
  

If you run a business, you’ve probably found yourself blurring the lines between company debts and personal spending, especially when times get tough. Maybe you’ve told a creditor you can’t pay the business loan this month because your personal mortgage is overdue.

But here’s a vital truth: your company’s debts and your personal debts are legally separate unless you’ve signed a personal guarantee.

And here’s the surprise:

Most UK business owners we speak to can’t honestly say whether they’ve signed personal guarantees or not. So, what exactly is a personal guarantee, and why does it matter?

Let’s break it down.

Personal Guarantees: When Limited Liability Disappears

When it comes to borrowing, having personal guarantees attached to the business means you will assume legal personal responsibility if the company cannot pay the debt.

This situation involves a significant personal risk, highlighting how easily the lines between business and personal debt can become blurred.

Recent UK data highlights just how common personal guarantees are nowadays. It's interesting to see how many people rely on them!

• In late 2023, 34% of small businesses applied for loans specifically to cover daily expenses, with most requiring personal guarantees.
• Personal guarantee insurance applications rose by 3.2% year-on-year in 2025, highlighting a growing awareness of the risks.
• In 2023, the Federation of Small Businesses shared concerns about how the increasing need for personal guarantees is impacting business growth.

If you're a company director and unsure whether you have any personal guarantees for the business debts, it's crucial to find out immediately. Clarifying this is important because it directly impacts how you can manage the debt; we'll address this later.

Here's an example of what typically happens time and time again, and more importantly, what not to do:

John’s Costly Mistake: A Case Study

John Rogers, a business owner facing difficulties, contacts his creditors to explain his situation. He sends a letter stating he can only make a small monthly payment towards his debt.

However, John makes a key error: he reveals that a personal incident has affected him, leading to a decline in his business revenue. He mentions needing to cover his mortgage, which leaves no funds for the business debt, and he signs off as simply as “John Rogers”.

Wrong move, John!

By mixing his personal situation with the business, John:

• Made his personal problem the creditor’s business.
• Gave away personal information the creditor didn’t ask for (and will gladly accept).
• Shifted the focus away from the company’s financial position, which is what matters in a limited company setup.

Keep in mind that creditors usually don't write letters directly to individuals like “John.” Instead, they often address their letters to “The Directors” or specify a name like “John Rogers, Director at [Business Name].” These creditors are experienced and understand that John isn't required to share personal details. However, they’re always happy to listen if he's willing to share more. The more he opens up, the more ammunition they have.

Result?

Instead of accepting John’s payment offer, the creditor will almost certainly:

• Demand full business financial information (statements, accounts, cash flow)
• Possibly use John’s personal disclosures to pressure him for further payments
• Reject or delay any payment proposals until they have far more info than needed

The Extra Risks John Has Created

1. If John has signed a personal guarantee, his letter makes it even easier for the creditor to come after him in person.
2. By sharing personal finances, John may prompt more aggressive recovery action from the creditor.
3. He could pressure himself into using personal savings or taking a personal loan to pay a business debt, which is unnecessary and risky.

Due to John's misunderstanding about the debt, there is also a significant risk that John might use his own money or take out a personal loan to cover it. This is not an uncommon move and is entirely unnecessary.

What Should John Have Done Differently?

1. Always Speak as the Business, Not Yourself. Instead of sharing his personal situation, John should have written on behalf of the company, representing himself as the director. For example:

John Rogers, Director, [Business Name]
Remember: In a limited company, the director is an employee, not the business itself. If John leaves, someone else can take on that role. Don’t blur the lines; keep your communication professional and official.

2. Share Only Business Financial Information.
John should have focused solely on the business’s financial issues and left his personal story out altogether.

• The company’s income, expenses, and challenges are what matter to the creditor.
• What John does with his salary or how his personal finances are going is irrelevant to the company's obligations.
• Treat business and personal finances as two entirely separate entities.

The bottom line:
Maintain clear boundaries in each conversation. Your responsibility is to safeguard yourself and the company by avoiding sharing personal information when communicating with business creditors.

The bank will decide when and if it wants to approach you directly to take responsibility for the business debt. If the bank contacts you directly to recover the debt, you must cooperate with the bank to find a solution.

When Personal Guarantees "Crystallise"

Personal guarantees typically crystallise when:

• The company becomes insolvent
• The company enters formal liquidation
• The company defaults on loan repayments
• The lender decides to call in the guarantee

Recent case law indicates that HMRC and other creditors are increasingly pursuing directors personally when they have valid grounds. In 2025, notable cases have emerged where directors faced personal liabilities exceeding £100,000 for company tax debts.

If your business qualifies for credit on its own and you haven't signed a personal guarantee, rest assured that the debt belongs to the company, not to you.

• The bank cannot pursue you personally. They must deal with the company as a separate legal entity.
• The company is regarded as its own “person.” If the business defaults, the bank’s recovery actions are generally limited to the company assets.
• Business debts are not the same as consumer debts: Business borrowing isn’t governed by the Consumer Credit Act, so certain consumer protections are not available; however, personal liability also does not apply.
• If a County Court Judgment (CCJ) is issued against a company's debt, it only affects the company’s credit rating, not yours as a director or individual.

Exceptions only apply if you have personally guaranteed the debt, acted fraudulently, or abused your position. Otherwise, the “corporate veil” remains intact.

The Shareholder Exception: What Are You Really Liable For?

There’s one small exception to limited liability - your shares.

• As a shareholder in a limited company, your liability is limited to the value of your shares.
• For example, if you own £1,000 worth of shares, you may be required to pay that amount if the company is wound up and your shares have not been fully paid for.
• You never have to pay more than your total share value, and you're not liable for any other company’s debts with your own money.

In practice, most small companies value their shares at only £1 or £100, meaning the risk is typically low.

Other Scenarios Where Personal Liability Can Arise

Directors can become personally liable in these specific circumstances:

• Fraudulent trading: Intentionally misleading creditors, customers, or investors
• Wrongful trading: Continuing to trade when you knew the company was insolvent
• Overdrawn director's loan accounts: If your personal drawings exceed what you've lent the company
• Breach of fiduciary duties: Failing to act in the company's best interests
• Personal use of company funds: Particularly money owed to HMRC for taxes

Recent enforcement statistics show:

• HMRC is pursuing directors more aggressively for tax debts
• Personal Liability Notices are being issued more frequently
• Directors are facing disqualification for up to 15 years for serious breaches

The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.