A limited company has its own legal personality, separate from the people who run it. That separation is the source of much of the difficulty in recovering commercial debt: the directors who took the order are not personally liable for the invoice, and the company can put up the corporate veil as a shield. This guide explains how the recovery actually works against incorporated debtors, the leverage points that make it move, and the rare circumstances in which the directors themselves can be reached.

The limited liability problem

Limited liability means that a limited company's creditors generally have recourse only against the company's assets, not the personal assets of its directors or shareholders. This is the foundation of UK company law and is rarely set aside by the courts. For a creditor pursuing an unpaid invoice, this has two practical consequences.

First, the recovery target is the company. Letters, demands, claims, and enforcement go through the company as the legal entity. The directors are not, on the face of things, personally on the hook. Second, the practical recovery prospects are constrained by what assets the company has and what it is willing to do with them.

The leverage that makes recovery work, despite this, is not legal but reputational and personal. Directors are individuals. They have their own commercial relationships, their own credit profiles, and their own future plans. A CCJ on the company's record, a winding‑up petition advertised in The Gazette, or a letter on a recovery firm's letterhead naming the directors by reference to their fiduciary duties, all create personal pressure even though the legal liability remains corporate.

Identifying the right entity

Step zero is identifying the correct legal entity. The trading name on an invoice is often not the registered company name. The address on correspondence is often not the registered office. Getting this wrong is the single most common reason recovery actions stall.

Free at Companies House: every UK limited company must file its full registered name, registered office, company number, current officers (directors and the company secretary if any), filed accounts, and confirmation statement. The recovery practitioner reads this file before drafting anything.

Look in particular at:

  • The company status. Is the company active, dissolved, in administration, or in liquidation? Recovery actions against a dissolved or insolvent company require different procedural routes.
  • The most recent filed accounts. Are they micro‑entity, abbreviated, or full? What balance of fixed and current assets is recorded? Is the company solvent on the balance sheet?
  • The current officers. Who has been a director for how long? A director appointed within the last six months may have a different attitude to inherited debts than the founder.
  • Charges register. Is the company's bank or factoring company in priority over unsecured trade creditors? This affects whether enforcement against company assets is realistic.
  • Group structure. Is the debtor part of a group? Holding companies sometimes have stronger recovery prospects than operating subsidiaries.

The escalation path that works

Stage one: a formal demand on professional letterhead

The first move on a non‑paying limited company is a single, formal, well‑drafted demand. It identifies the company by registered name and number, the invoice particulars, the legal basis (the contract and the Late Payment Act), and the sums claimed (principal, statutory compensation, statutory interest, recovery costs). It cites the directors by name. It allows fourteen days for payment.

The demand should not be on the creditor's standard notepaper. A letter from the supplier looks like every other chase the debtor has filed and ignored. A letter on solicitor or recovery firm letterhead lands differently. The directors recognise that the matter has moved past the supplier's accounts function.

Stage two: a Letter Before Action

If the formal demand goes ignored, a Letter Before Action follows the structural template required by the Practice Direction on Pre‑Action Conduct. The LBA escalates: it explicitly states that proceedings will be issued without further notice if payment is not received in fourteen days. It schedules the sums claimed in detail. It invites the debtor to set out any dispute or propose a payment plan, in writing. See our LBA template guide for the structural requirements.

Stage three: court proceedings or statutory demand

The third stage depends on the debt size and the debtor's profile. For most matters, a money claim through the County Court is the proportionate next step. For undisputed debts above £10,000 against a solvent debtor that is choosing not to pay, a statutory demand with the implicit threat of winding up is faster and more effective.

Director's fiduciary duties

Sections 170 to 177 of the Companies Act 2006 set out the duties owed by a company director. Among them are the duty to promote the success of the company for the benefit of its members, the duty to exercise reasonable care, skill, and diligence, and (critically for distressed debtors) the duty to consider or act in the interests of creditors when the company is, or is likely to become, unable to pay its debts.

The last of these is the most relevant for recovery practice. Once a company is in financial difficulty, the directors' duties shift. They must take account of creditor interests in their decision‑making. Continuing to incur debts the company cannot pay, while paying favoured creditors over others, can engage personal liability for wrongful trading under section 214 of the Insolvency Act 1986.

Recovery letters that name the directors and reference these duties are not legal threats in the strict sense. They are reminders that the directors' personal exposure is not zero. Most directors of solvent companies, faced with an undisputed debt, will pay rather than continue to push the issue when their personal duties are explicitly invoked.

The personal liability angle

True piercing of the corporate veil is rare. The cases are narrow: fraud, sham companies, evasion of an existing legal obligation. For most ordinary debt recovery matters, the corporate veil holds.

However, several routes exist where directors can be personally exposed without piercing the veil:

Wrongful trading

Section 214 of the Insolvency Act 1986. Where a company has gone into insolvent liquidation and its directors knew, or ought to have known, before the start of liquidation that there was no reasonable prospect of avoiding insolvent liquidation, the directors can be ordered to contribute personally to the company's assets. In practice, only liquidators can bring a wrongful trading claim, and only after liquidation. For an unsecured trade creditor, this is a derivative remedy: the liquidator may recover, with the proceeds distributed pari passu to creditors. Useful as a legal threat in correspondence; less useful as a primary recovery route.

Personal guarantees

Many small commercial contracts include a personal guarantee from a director, signed at the time of the original supply agreement or credit account opening. If one was given, the creditor has direct personal recourse against the guarantor for the full amount of the company's default. Always check the original paperwork for personal guarantees.

Misfeasance

Section 212 of the Insolvency Act 1986. Where directors have misapplied or misappropriated company assets, or breached fiduciary duties owed to the company, the liquidator can apply for a misfeasance order requiring personal restitution. Again, a post‑liquidation remedy.

Fraudulent trading

Section 213 of the Insolvency Act 1986. Where the company's business has been carried on with intent to defraud creditors, those who knowingly participated can be made personally liable. The threshold is high; intentional fraud must be proved.

For practical purposes, the most useful personal‑liability lever in commercial debt recovery is the personal guarantee. Wrongful trading and misfeasance are real but downstream. Make sure the original paperwork is reviewed at the start of any matter against a limited company.

The strategic value of the statutory demand threat

For solvent limited companies that are choosing not to pay an undisputed debt, the most effective leverage is the threat of a statutory demand and a winding‑up petition. The reasons are commercial, not legal.

Once a winding‑up petition is presented, it is advertised in The Gazette seven business days before the first hearing. From that moment, the company's bank may freeze accounts to avoid liability for paying out funds during a presumptive insolvency. Suppliers may demand pro forma payment. Customers may delay paying their own invoices. The company's commercial life is materially disrupted, even before the petition reaches a hearing.

Solvent companies will almost always pay rather than face that disruption. The threat does the work. The actual presentation of the petition is rare on undisputed debts because settlement happens first.

Most solvent limited‑company debtors who refuse to pay through the LBA stage settle on receipt of a statutory demand. The few that ignore the demand usually settle once the petition is presented but before it is advertised.

When the company is genuinely insolvent

If the debtor is insolvent, the recovery calculus changes. Insolvent companies cannot pay; pursuing them through statutory demand and winding up may achieve nothing more than terminating the company without recovery to the creditor.

The right move depends on the situation:

If the company has been put into administration by its directors or its bank, the trade creditor is a creditor in the administration. File a proof of debt. Wait for the administrator's report. Distributions to unsecured creditors in administrations are typically modest.

If the company has gone into liquidation, similarly, file a proof of debt with the liquidator. If wrongful trading or misfeasance is suspected, engage with the liquidator on the evidence. The liquidator's recoveries flow to the company, then to creditors per priority.

If the company has been dissolved and the debt was outstanding, the creditor can apply to restore the company to the register, then pursue. This is rarely worthwhile for small debts but can be appropriate for substantial sums where the dissolved company had assets.

If the company is plainly insolvent but has not yet entered a formal procedure, the trade creditor must decide whether to incur the cost of forcing the issue (statutory demand and winding‑up petition) or whether to write the debt down. Often the latter is the rational choice.

When to walk away

Some commercial debts are not worth pursuing. The criteria for closing a file rather than escalating:

  • The company is dissolved with no realistic prospect of restoration.
  • The company is in liquidation with all assets pledged to secured creditors.
  • The company is a one‑person service vehicle with no assets and no insurance, and the underlying contract was unsecured.
  • The debt is genuinely disputed on the merits and the cost of trial is disproportionate to the recovery.
  • The continuing commercial relationship has greater value than the debt.

A good recovery practitioner declines matters that fall into these categories at the assessment stage, rather than incurring procedural costs that the creditor will not recover.

Frequently asked questions

Can I sue the directors personally for the company's unpaid invoice?

Generally no, unless they signed a personal guarantee, the company is in liquidation and a wrongful trading or misfeasance route is being pursued by the liquidator, or the unusual circumstances of fraudulent trading or veil‑piercing apply.

What if the company has no assets to satisfy a CCJ?

Enforcement against an asset‑less company recovers nothing. The creditor's options are to write the debt down, to apply for an order to obtain information to identify any hidden assets, or to wait and re‑enforce if the company's circumstances change. A CCJ remains valid for six years and can be revived for a further six.

If a director resigns, are they still on the hook?

For ordinary trading debts, no. Resignation cleanly ends the director's role. For wrongful trading liability, the director's duties at the time the debts were incurred are what matters; a later resignation does not retrospectively escape liability for conduct while in office.

The debtor company has been bought by a larger group. Can I pursue the parent?

Generally no, unless the parent has expressly assumed the debt or the corporate group is being used as a sham. Acquired subsidiaries continue to bear their own debts. The acquisition itself may, in practice, increase the prospects of recovery because the parent will often pay subsidiary debts to keep the books clean.

How long do I have to issue proceedings?

Six years from the date the debt fell due, under the Limitation Act 1980. After six years the debt becomes statute‑barred and is generally unenforceable. Pursue early; do not let limitation expire.