One of the fundamental principles of company law is that a company is a separate legal entity from its shareholders and directors. Consequently, the fact that a person is a director does not ordinarily make that person personally liable for every debt incurred by the company. However, limited liability does not give directors immunity from personal liability. There are circumstances in which a director can be held personally responsible for a company’s debt, loss or wrongful act. These circumstances arise from legislation, the director’s own conduct, personal guarantees, breach of fiduciary duties, fraud and certain situations involving insolvency or misuse of company property. The Companies and Allied Matters Act 2020 (CAMA 2020) contains specific provisions dealing with the personal liability of directors and officers. In particular, section 316 imposes personal liability in specified circumstances where a company receives money or property for a specific purpose or project and, with intent to defraud, fails to apply it for that purpose. This article explains when a director can be personally liable for a company’s debt or wrongful acts in Nigeria, and when the separate legal personality of the company protects the director. Is a Director Personally Liable for a Company’s Debt in Nigeria? Ordinarily, no. A company incorporated under CAMA is a separate legal person. A debt incurred by the company is therefore ordinarily the debt of the company, not automatically the personal debt of its directors. The mere fact that a person is a director does not make that person a guarantor of the company’s obligations. This principle is important because the company structure exists precisely to separate the company’s liabilities from the personal liabilities of its members and officers. However, there are important exceptions. When Can a Director Be Personally Liable for a Company’s Debt? A director can become personally liable where, for example: the director personally guaranteed the company’s obligation; the director acted outside the protection of the corporate structure in circumstances recognised by law; the director committed fraud; the director misapplied company money or property; CAMA expressly imposes personal liability; the director breached a personal statutory or fiduciary obligation; the company’s business was carried on fraudulently or recklessly in circumstances covered by insolvency provisions; or the director personally committed the wrongful act giving rise to the claim. The precise basis of liability must therefore be established. Does a Director Become Liable Simply Because He Signed a Company Contract? No. Where a director signs a contract expressly on behalf of a company and acts within the authority of the company, the contractual obligation ordinarily belongs to the company. CAMA recognises the distinction between the company and its officers. Acts undertaken by the company’s authorised organs in the ordinary course of business can constitute acts of the company itself. A creditor therefore cannot automatically convert a company debt into the personal debt of a director merely because the director signed the contract. The position changes where the director signs in a personal capacity, gives a personal guarantee or commits an independent wrong. What Happens If a Director Personally Guarantees a Company Loan? This is one of the clearest circumstances in which a director can become personally liable. Suppose a bank lends ₦100 million to ABC Limited and the managing director signs a personal guarantee securing repayment. If ABC Limited defaults and the terms of the guarantee make the director liable, the bank can enforce the guarantee against the director in accordance with its terms. The liability in that situation does not arise merely because the person is a director. It arises because the director separately assumed personal liability as a guarantor. Can a Bank Sue a Director for a Company Loan? Yes, where the director has a legally enforceable personal obligation, such as a guarantee. The bank must establish the basis of the director’s personal liability. A director who has not guaranteed the company’s debt does not ordinarily become personally liable simply because he or she participated in obtaining or approving the company’s loan. The loan agreement, guarantee, security documents and circumstances of the transaction must therefore be examined. Can a Director Be Personally Liable for Fraud Committed Through a Company? Yes. The corporate structure does not protect a director from personal liability for the director’s own fraudulent conduct. For example, where a director deliberately makes fraudulent representations to obtain money personally or causes company funds to be diverted through fraudulent conduct, the director can face personal consequences. The fact that the fraudulent conduct was carried out through a company does not transform the director’s own wrongful conduct into an act for which the director is automatically immune. Can a Director Be Personally Liable for Misusing Company Money? Yes. Directors occupy fiduciary positions and are required to act in the interests of the company. CAMA provides that directors are trustees of the company’s money, property and powers and are required to account for money over which they exercise control and refund money improperly paid away. A director who improperly diverts or misapplies company money can therefore face personal liability to the company. This is different from saying that every company debt becomes a director’s personal debt. The liability arises from the director’s own breach of duty or wrongful handling of company property. What Does Section 316 of CAMA 2020 Provide? Section 316 is particularly important. It addresses circumstances in which a company: receives money by way of a loan for a specific purpose; receives money or other property as an advance payment for the execution of a contract or project; or with intent to defraud, fails to apply the money or property for the purpose for which it was received. Where the statutory conditions are satisfied, every director or other officer in default is personally liable to the person from whom the money or property was received for a refund of the money or property not applied for the specified purpose. The company’s own liability is not extinguished. This is an important statutory exception to the ordinary rule of