Your director duties after a winding-up petition shift from serving shareholders to prioritising creditors, and you must avoid any action that could deepen their losses. This is often called the "shift in duty" — once a company is likely insolvent, the law expects you to act with the whole body of creditors in mind, not just the business as usual. Getting this wrong can lead to personal liability, even though the company itself is a separate legal entity.
A winding-up petition is a formal court application, usually from HMRC or another creditor, asking the court to compel the company into compulsory liquidation. It's a serious signal that insolvency is close or has already arrived. This guide explains what changes for you as a director, what wrongful trading means, and the practical steps that protect your position while the petition is live.
This is general information, not a substitute for advice on your specific company — more on that below.
How your duties shift once insolvency looms
Directors normally owe duties to the company and, by extension, its shareholders, under the Companies Act 2006 — duties like acting in good faith and promoting the company's success. Once insolvency is likely, case law and the Insolvency Act 1986 mean your focus must move to creditors as a whole.
This doesn't mean every decision becomes wrong. It means you should ask, before any significant step: does this help or harm the pool of assets available to creditors? If you're unsure whether your company has reached this point, it's worth discussing your position with a regulated insolvency practitioner rather than guessing.
The duty to prioritise creditors
Prioritising creditors doesn't mean paying one creditor and ignoring the rest. It means:
- Not favouring one creditor over another in a way that improperly benefits them (this can later be challenged as a "preference").
- Not disposing of company assets below their proper value.
- Keeping the company's remaining funds and assets intact for a fair, orderly distribution.
- Being transparent with your accountant, and later with any appointed insolvency practitioner, about the company's true financial position.
If you're weighing up whether to keep trading at all, our guide on Can You Trade After a Winding-Up Petition? looks at that question in more detail.
What wrongful trading is and how to avoid it
Wrongful trading, set out in section 214 of the Insolvency Act 1986, applies when a director knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation — but the company kept trading and creditors' losses grew as a result.
To avoid it, directors are expected to:
- Take every reasonable step to minimise further loss to creditors once insolvency looks unavoidable.
- Seek advice promptly from an accountant or insolvency practitioner rather than trading on regardless.
- Stop taking on new credit or orders the company is unlikely to be able to pay for.
- Document the reasoning behind decisions to continue or stop trading.
The court's guidance on this area is available from the gov.uk wrongful trading guidance, and the full legal test sits in the Insolvency Act 1986, section 214.
Actions that increase personal liability
Certain actions raise your personal risk far more than ordinary trading decisions. These include:
- Preferences — repaying a friendly creditor (or yourself) ahead of others shortly before insolvency.
- Transactions at an undervalue — selling company assets for less than they're worth, including to connected parties.
- Misfeasance — misusing company money or breaching your duties in a way that causes loss.
- Continuing to trade after it's clear there's no realistic route back to solvency.
- Misusing the company bank account once a petition has been advertised, since the account may later be frozen and any dispositions can be challenged.
For a wider view of how the petition itself progresses alongside these risks, see Winding-Up Petition: What Happens Next?
Keeping records that protect you
Good records are your best protection if your conduct is ever reviewed. From the point insolvency looks likely, keep:
- Minutes or notes of board decisions, including why the company kept trading or stopped.
- Correspondence with creditors, HMRC, and any advisers.
- Up-to-date management accounts and cash flow forecasts.
- Evidence that you sought professional advice, and when.
These records show you were acting reasonably and in creditors' interests, rather than ignoring the company's true position.
How the conduct review works after an order
If the court makes a winding-up order, an official receiver or licensed insolvency practitioner is appointed as liquidator. Part of their role is a statutory review of director conduct in the run-up to insolvency, reported to the Insolvency Service. This isn't automatically punitive — most directors who acted reasonably have nothing to fear from it.
The review looks at whether duties were breached, whether wrongful or fraudulent trading occurred, and whether disqualification proceedings might be appropriate. Petitions themselves are advertised publicly in The Gazette once served, which is part of why early, honest engagement matters.
Our article on Director Duties When Your Company Is Insolvent covers the broader duty of care that applies once a company is formally insolvent, not just once a petition has been issued.
Frequently asked questions
Can I be personally liable after a winding-up petition?
Yes, in specific circumstances — mainly wrongful trading, misfeasance, preferences, or transactions at an undervalue. Ordinary trading losses, on their own, don't usually create personal liability.
What is wrongful trading, in plain terms?
It's continuing to trade after you knew, or should have known, that insolvent liquidation couldn't reasonably be avoided, without taking steps to limit the harm to creditors.
Will I be disqualified as a director?
Disqualification isn't automatic. It follows a formal report and, usually, evidence of serious misconduct such as persistent HMRC non-payment, misuse of funds, or reckless trading, rather than the petition alone.
Does resigning as a director stop the review of my conduct?
No. The conduct review covers your actions while you were a director, so resigning after a petition is issued doesn't remove that period from scrutiny.
Should I keep paying some creditors while the petition is pending?
Be cautious. Paying selected creditors, including yourself or connected parties, ahead of others can later be treated as a preference. Get guidance before making payments once a petition is live.
This article is general information, not legal, financial or insolvency advice, and every company's situation is different.
If you'd like to talk your position through, Harbourfirst can introduce you to a regulated insolvency practitioner or solicitor — start an enquiry.