Can I resign as a company director?

Understanding director resignations and shareholder disputes

If you are thinking of resigning as a company director, there are specific steps you and the company must take. Whether you are resigning due to ill-health or retirement, or other directors have asked you to resign, fulfilling your obligations in law is paramount.

On this note, if you are the sole director of the business you need to make sure a new director is in place before you resign, otherwise the company could be struck from the register at Companies House.

It is relatively straightforward to resign as the director of a limited company, but if the business should fail or face creditor legal action in the future, the issue of personal liability can come to the fore.

How do I resign as the director of a limited company?

These are the main steps to take:

• Inform other company directors
• Make your fellow directors aware of your intention to resign. You will need to check your employment contract or service agreement for any notice period required, and then formally notify the company in writing.
• Are you also a shareholder?
• If you are a shareholder you should consult your shareholder agreement for rules on transferring shares, or whether you need to follow any other set procedures in these circumstances.
• Inform clients/customers and other stakeholders
• You may also wish to let clients and suppliers/other stakeholders know that you are resigning, and provide them with new point-of-contact details where necessary.
• Inform Companies House
• Use ‘Form TM01 – Resignation of a Company Director’ to notify Companies House of your resignation. The company name and registration number is required on Form TM01, along with your full name and date of birth, and the effective date of your resignation. Your details remain on the Companies House register, with a note to indicate that you have resigned.

Can I be held liable for company debt after I have resigned as director?

If the company experiences financial distress and enters insolvency after you resign, you remain liable for your actions and the decisions you made when you were a director. Should the company enter liquidation, the liquidator will look in hindsight over several years to uncover the reasons behind the business’ failure.

The actions of all directors who were in place during that time will be scrutinised. Only in specific circumstances could it become a problem, however, and there are generally no issues with personal liability for directors who resign.

So what are the circumstances that could lead to personal liability? Providing a personal guarantee for company borrowing is one, and being viewed as a ‘shadow’ director.

What is a shadow director?

You are not liable for any decisions made following your resignation if you have no further input to the company, but some directors continue to hold influence even after they have resigned. This is known as being a shadow director.

If you are regarded as a shadow director and the business experiences financial distress, you may face liability issues - shadow directors can be investigated in the same way as active directors.

Personal guarantees

Personal guarantees are commonly required by lenders when businesses seek funding. If you have provided a personal guarantee for company borrowing, it remains in place following your resignation.

Should the business fail to keep up repayments on a loan that you have personally guaranteed, the lender will activate the guarantee. Even if you are no longer a director, they will expect the full amount of the guarantee to be repaid.

Resigning as a director typically means you no longer influence the company’s financial status, and with a guarantee still in place, you may be open to financial uncertainty on a personal level. Depending on your relationship with the company, you may not even realise the business is experiencing financial problems.

Resigning as a company director is a straightforward process in a practical sense, and in the majority of cases there are no issues going forward. If you would like more professional advice and guidance on resigning as a company director, please contact our partner-led team at Begbies Traynor Group. We can offer you a free, same-day consultation, and operate an extensive network of local offices throughout the UK.