Running a company through a limited company usually means the business, not the person behind it, carries the risks. However, such protection has limits. A director who runs the company badly or dishonestly can be banned from acting as a director for years and, increasingly, ordered to pay compensation out of their own pocket. A recent High Court decision, arising from a Covid-era ‘Bounce Back Loan Scheme’, or BBLS, is a clear illustration of both.

How can a director be disqualified?

Under the Company Directors Disqualification Act (CDDA) 1986, where a company becomes insolvent, the Insolvency Service can investigate the conduct of its directors. If a director's behaviour is considered "unfit" to run a company, then a court can disqualify them for between 2 and 15 years, depending on the severity of the offences.

A disqualified person cannot be a director, or even take part in the promotion, formation, or management of a company for the duration of the ban. Breaching the order is a criminal offence and can make the person personally liable for a company's debts. It is important to note that disqualification does not require dishonesty, as even serious incompetence or gross negligence can be sufficient grounds for disqualification.

The case in question concerns a sole director of a company who had applied during the Covid period for a £50,000 government-backed Bounce Back Loan, or BBL. Those loans were capped at a quarter of the business's 2019 turnover, could be up to £50,000, and relied heavily on applicants declaring their figures honestly. The director concerned claimed a 2019 turnover of just over £202,000, although later accounts indicated a turnover of around £81,000, as confirmed by the bank records. Based on the correct figures, he was entitled to far less than the £50,000 he received. The company later went into liquidation with no assets, and the taxpayer was compelled to make good the loan to the bank.

ICC Judge Barber disqualified him for 10 years, having found that he "ought to have known" he was seriously overstating the company's turnover, describing the conduct as grossly negligent and a serious breach of trust during a national emergency. His complete failure to explain himself or engage with the investigation had further weakened his position.

Can a director be made to pay the money back personally?

Yes, and this is the consequence many directors still fail to appreciate. Under Section 15A of the CDDA (introduced in 2015), the court can make a "compensation order" alongside a disqualification, requiring the director to personally reimburse the losses their misconduct caused. In this ruling, on top of the ban, the director was ordered to pay the amount he had over-claimed, plus interest and costs. The corporate shield did not save him, as the loss flowed from his own conduct, and so he personally had to meet it.

Since the revelation of widespread Covid-era fraud, the Insolvency Service has engaged in a wide enforcement drive and pursued large numbers of directors over BBL abuse, and the combined punishment of a long ban plus repayment is now routine.

Implications:

The practical lessons are straightforward, yet easily overlooked. ‘Limited liability’ is not a licence for misconduct or an impenetrable shield; a director remains personally accountable for how they run the company and, in particular, for the accuracy of what they tell banks, government schemes, or other lenders. Figures put forward in a loan application must be supported by the company’s accounts and bank statements, and any careless ‘overstatement’ can be treated as seriously as a deliberate one.

Equally important is the issue of engagement. Ignoring letters from the Insolvency Service, or failing to turn up and explain one’s actions, only tends to make matters worse. Any unexplained breach invites the court to assume the worst and rate the case more seriously. To recap:

• Limited liability does not protect you from personal financial ruin if corporate insolvency is caused by your own misconduct or gross negligence.
• You can be disqualified even without proof of dishonesty; careless "overstatements" or a failure to check figures are treated just as severely as deliberate deceit.
• The courts are routinely using their power under Section 15A of the CDDA to force directors to pay compensation directly out of their own pockets to cover the financial losses caused by their behaviour.
• A disqualification completely bars you from acting as a director, or having any direct or indirect involvement in promoting, forming, or managing any company for up to 15 years.
• Failing to cooperate or engage with an Insolvency Service investigation will heavily worsen your position, as courts will assume the worst and hand down harsher penalties.

The broader message is that disqualifying a director is not a seldom-used power. It is frequently actively enforced; bans may be long, and compensation orders are now standard practice as the financial consequences of any misconduct can follow the director home.

Disclaimer: This simplified summary of a UK legal case is for general information only. It is not legal advice, may omit important detail, and may not reflect later developments or appeals. Please read the full judgement and seek professional legal advice before acting.