When trading conditions get tough, directors naturally focus on keeping the business going by managing cash flow, working with suppliers, and protecting jobs. However, it is easy to overlook that challenging times also change how directors’ decisions are judged from a legal perspective.
In Northern Ireland, directors’ duties remain in place even when a business is under pressure. In fact, these responsibilities become even more important, and the personal risks can grow.
Andrew Campbell, Partner at Allsopp Campbell Rainey, explains: “Directors often assume that giving a superficial thought to ‘acting in the company’s interests’ is enough. When a business is in financial difficulty, the law starts asking a different question: what is ‘the company’s interests’, and if there are competing interests then whose interests should come first, and whether the risks being taken are justified.”
In Northern Ireland, directors’ responsibilities are set out mainly in the Companies Act 2006 and the Insolvency (Northern Ireland) Order 1989. Together, these laws explain what directors are expected to do, when creditor interests must take priority, and when personal liability can arise if a business continues to trade in serious financial difficulty.
When the Focus Shifts
Normally, directors’ duties are mainly to the company and its shareholders. But if a company becomes insolvent or is close to it, those duties shift to focus on the interests of creditors.
This shift is not always obvious. Many directors keep trading without realising they have entered a risk zone where their decisions might be reviewed, sometimes years later.
The risk is taking decisive action without realising that the legal situation has changed.
Common Personal Risks Directors Miss
Many of the most common problems we see come from good intentions, not from bad faith.
These include:
• Continuing to trade without a realistic recovery plan
• Favouring one creditor over others, even if good faith and for seemingly very good reasons
• Taking on new liabilities (often for ‘good reasons’) with no apparent ability to meet them
• Delaying difficult decisions in the hope that conditions improve
• Relying on informal advice rather than documented professional input
Any of these actions can put directors at personal risk if the company fails later on.
Wrongful Trading and Decision-Making
Directors in Northern Ireland can be accused of wrongful trading if they knew, or should have known, that there was no realistic chance of avoiding insolvency and did not take steps to reduce losses to creditors.
Importantly, these decisions are judged after the fact. Choices that seemed reasonable at the time may be questioned later if records are lacking or risks were not properly considered.
Neil Allsopp, Partner at Allsopp Campbell Rainey, notes: “The issue is rarely a single decision. It’s often a pattern: missed warning signs, undocumented choices, or continuing to trade without clear justification. That’s where personal exposure can arise.”
Documentation Matters
One of the best ways directors can protect themselves is by keeping evidence of good decision-making.
This does not require being overly formal, but it does mean directors should:
• Record board discussions and decisions
• Document financial information relied upon
• Note professional advice received
• Actively review solvency and cash flow
• Revisit decisions as circumstances change.
Having a clear record of decisions can be the difference between facing criticism and being protected.
At Allsopp Campbell Rainey, we try to support every company we advise to minute their process of thinking as a board. A recent example included taking great care to advise the sole director of a borrower entity where that director is also giving a personal guarantee, and is also transferring assets from a related party entity the sole director is also involved in. We will advise our client the board, the guarantor will get separate legal advice, and we will then help to pull it all together with suggested minutes for the board (the two go very much hand in hand) but we will also help you ensure that, in the busyness of day to day business life, the board stops to go through those minutes as a collective.
Personal Guarantees and Financial Exposure
Tough trading periods often highlight the importance of personal guarantees, as in our example above. Directors may already be exposed through guarantees given to banks, landlords, or key suppliers, sometimes without fully understanding the consequences.
As financial pressure grows, the link between company failure and personal liability becomes more direct, especially if guarantees have been extended or renewed during difficult times.
We at Allsopp Campbell Rainey have been with various boards as they feel the pressure to take an investor’s lifeline of cash, but we encourage them to stop and ask themselves ‘at what cost to a realistic recovery scenario’ and to the creditors impacted by that. They can be very challenging decisions and situations.
Knowing When to Get Advice
Getting advice early is not a sign of failure. In fact, it often shows good governance.
Directors should consider taking advice when:
• Cash flow becomes unpredictable
• Creditor pressure increases
• HMRC arrears build up
• Refinancing is required
• Insolvency is a realistic possibility.
Getting legal advice early can help directors understand their options, protect themselves, and avoid mistakes that might only become clear later.
Difficult times do not always lead to personal liability, but they do require more care, transparency, and good judgement.
Directors who know when their duties change, seek advice early, and keep good records are much better positioned to protect both the business and themselves.
How we can help
Allsopp Campbell Rainey helps directors and business owners across Northern Ireland with corporate risk, governance, and disputes during financial difficulty. Contact Andrew Campbell, Neil Allsopp, or the Allsopp Campbell Rainey team.