How limited is a liability?

It used to be reasonably common (and frustrating) for companies to go into liquidation and then within a short time a similar-sounding company with the same people would be operating from offices in the same neighbourhood. Under the Companies Act, these new companies were traditionally treated as a separate legal entity with limited redress for a consumer against the directors.

However, changes to the Act in November 2007 have been designed to prevent the use of these kinds of so-called "phoenix companies". For 5 years following liquidation the director of a failed company must not be involved in a phoenix company or in a business with a similar name to the failed company. If a director tries to do this they'll be personally liable for the debts of the new company while it trades under the unacceptable name. They may also face fines and imprisonment.

What does limited liability mean?

This is a legal term that means a company must meet its own debts, and the liability for those debts is limited to the assets it owns.

This protects the personal assets of the shareholders, whose liability is limited to any unpaid amount on their shares, or as provided by the company's constitution.

However, in order to borrow money, shareholders in some companies (especially small, family businesses) are required to guarantee to meet the liabilities of the company.

Responsibility

The company directors should not get off scot free if they are responsible for customers' loss.

If the directors of a failed company have themselves failed to meet their responsibilities under the Companies Act (not to trade insolvently, and to make decisions in the best interests of the company), they can be sued personally by the receiver, liquidator or creditors.