What are a director's duties when taking on debt?

2 min read

Best interestsOf the company

AffordableNot reckless

Creditors firstNear insolvency

The core duties

Under the Companies Act, directors must promote the success of the company, exercise reasonable care and skill, and avoid conflicts. In borrowing terms that means: the loan serves the company (not just one director); it is affordable on realistic forecasts; it is properly authorised by the board; and it is recorded. A directors' loan account must be kept accurately if any money flows to or from directors.

When the picture darkens

If the company is or may become insolvent, the duty shifts towards creditors — continuing to borrow when there is no reasonable prospect of repayment can amount to wrongful trading, with personal liability. Document decisions, avoid favouring one creditor, and take free advice early. Prudent, affordable borrowing to fund genuine growth is exactly what directors are expected to do.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

Can a director be personally liable for company debt?

Generally no, thanks to limited liability — unless they sign a personal guarantee, act fraudulently, or trade wrongfully while insolvent. Acting reasonably and keeping records protects you.

Does the board need to approve borrowing?

For anything material, yes — and it should be minuted. Proper authorisation protects directors, satisfies lenders, and is part of running the company responsibly. Check your articles for any specific limits.