Can my company’s creditors sue me?
So, you are the sole shareholder and director of a company. The company’s creditors issue summons against the company with you as a co-respondent. What is your position?
Quite simply, as the shareholder you cannot be held liable for the debts of the company. That’s what the word Limited means in (Pty) Ltd. Your risk is limited to the possibility of losing your investment in the company, the share capital. There’s a proviso. If you received a dividend when the company’s liabilities exceeded its assets (in other words, the retained income was negative on the balance sheet), then that dividend can be reversed.
Your position as director is also free from liability unless –
- You traded recklessly. That is, you committed the company to debt, knowing that it would be unable to repay it, or
- You committed fraud. That is, deliberate deceit with the intention to illegally or unethically gain at the expense of another, or
- You signed surety for the debt, or
- You have lent the company money on current repayment terms, and will therefore be one of the concurrent creditors in the event of liquidation, or
- You have lent the company money with no fixed repayment terms, and will therefore not even be one of the concurrent creditors.