Can Directors Sue Professional Advisers for Business Losses?

When a company suffers financial loss as a result of negligent professional advice, one of the first questions a director asks is: can I or the company sue the adviser responsible? The answer, under English law, is frequently yes. However, the route to a successful professional negligence claim is rarely straightforward. Understanding who can bring a claim, against whom, and on what legal basis is essential before taking action.

This article explains the legal framework governing claims by directors and companies against negligent professional advisers, identifies the most common categories of claim, reviews the key case law, and explains what you must do to protect your position.

The Legal Basis for a Professional Negligence Claim

A professional negligence claim arises where a professional such as a solicitor, accountant, tax adviser, auditor, or financial adviser has breached their duty of care and caused loss as a direct result. In English law, three elements must be established:

• A duty of care owed by the professional to the claimant
• A breach of that duty: The professional fell below the standard expected of a reasonably competent practitioner in their field
• Causation and loss: The breach caused quantifiable financial loss

The foundational test for breach is drawn from Bolam v Friern Hospital Management Committee [1957] 1 WLR 582, which established that a professional is not negligent if they have acted in accordance with a practice accepted as proper by a responsible body of professionals in that field. However, as the House of Lords confirmed in Bolitho v City and Hackney Health Authority [1998] AC 232, that body of opinion must be capable of withstanding logical scrutiny mere peer support is not a complete answer to a negligence claim.

Who Has Standing to Sue? The Company or the Director?

This is one of the most important and most misunderstood aspects of director-related professional negligence claims. The answer depends critically on to whom the duty of care was owed.

Claims by the Company

Where a professional was retained by and gave advice to the company itself, the cause of action belongs to the company, not to the individual director. If the company is solvent, its board may authorise litigation in the company’s name. If the company is insolvent, the liquidator or administrator may bring the claim on behalf of creditors.

Directors considering this route should seek early specialist advice from professional negligence solicitors to ensure the claim is structured correctly from the outset.

Claims by the Director Personally

A director may also have a personal claim where the professional assumed a duty of care to them individually, separate from their duty to the company. This is a factually sensitive question. In Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, the House of Lords confirmed that a tortious duty of care can arise from an assumption of responsibility, even in the absence of a formal contractual retainer. If an adviser knew that a director was personally relying on their advice to make a personal investment or personal guarantee decision, a personal duty of care may be found.

By contrast, where advice was given solely to the company, the director will generally have no independent cause of action: see Johnson v Gore Wood & Co [2002] 2 AC 1, where the House of Lords held that a shareholder and director could not separately claim for reflective loss, that is, a personal loss that merely mirrors the loss suffered by the company.

Common Types of Claims Against Professional Advisers

Negligent Tax and Accountancy Advice

Accountants and tax advisers owe a duty to give accurate, competent advice. Where negligent advice leads to avoidable tax liabilities, penalties, or interest, a substantial claim may lie. HMRC enquiries triggered by an adviser’s errors can give rise to significant losses. Our specialist team regularly handles claims against negligent accountants and tax advisers, and separately, our colleagues at Tax Disputes advise on HMRC disputes that arise in this context.

Negligent Legal Advice

Solicitors advising on corporate transactions, shareholder agreements, or restructuring owe duties to their client. Where poor drafting, missed deadlines, or flawed advice causes loss, claims against negligent solicitors can be substantial. A frequently litigated scenario involves a solicitor who fails to adequately advise a director about personal liability arising from a guarantee or security document.

Negligent Auditing

Auditors who sign off misleading accounts can expose a company’s directors to enormous risk. In cases such as Caparo Industries plc v Dickman [1990] 2 AC 605, the House of Lords limited the duty of auditors to shareholders as a class not to individual investors making acquisition decisions. However, where an auditor has gone beyond their statutory function and assumed a specific duty to advise the company or its directors, a duty of care can arise and claims can succeed.

Negligent Financial and Investment Advice

Independent financial advisers and investment managers owe fiduciary and tortious duties to their clients. Where unsuitable advice is given regarding corporate finance, pension schemes, or investment strategies, directors and companies may sustain significant recoverable losses. Visit our financial negligence claims page for further detail.

Insolvency, Winding Up, and Professional Negligence

When a company becomes insolvent, professional negligence claims can take on additional complexity. A liquidator has power under the Insolvency Act 1986 to pursue claims that vest in the company including claims against advisers whose negligence contributed to the insolvency. If your company is facing a winding up petition, or has already entered liquidation, understanding whether the negligence of an adviser caused or contributed to that position is a vital part of your overall legal strategy.

Directors who have personally guaranteed company debts may also have a separate cause of action if the negligence of a legal or financial adviser caused them to enter into guarantees they would not otherwise have given, or which were more onerous than they were told.

Limitation Periods: Time Limits You Cannot Ignore

Professional negligence claims are subject to strict time limits under the Limitation Act 1980. The primary rule is that a claim must be brought within six years of the date the cause of action accrued, typically the date the negligent act or omission occurred. However, where the loss was latent and not discoverable at that time, a three-year period runs from the date of actual or constructive knowledge of the material facts.

The so-called ‘longstop’ under section 14B of the Limitation Act prevents any claim being brought more than fifteen years from the negligent act, regardless of knowledge. Missing these deadlines will almost always be fatal to your claim. If you are concerned that time may be running, obtaining immediate specialist advice is essential.

The Pre-Action Protocol and How Claims Proceed

Before issuing proceedings in the High Court or Business and Property Courts, claimants must comply with the Professional Negligence Pre-Action Protocol. This requires the claimant to send a detailed Letter of Claim setting out the nature of the negligence alleged, the loss suffered, and the relief sought. The professional then has a defined period (typically three months) to respond.

This process serves a dual purpose: it promotes early settlement and ensures that any litigation that follows is properly scoped. Failure to comply with the Protocol may result in costs sanctions even if you ultimately succeed.

Our team at LexLaw manages this process from start to finish, ensuring your claim is compellingly presented and that no procedural steps are missed.

What Losses Can Be Recovered?

Recoverable losses in a professional negligence claim are assessed by reference to the principle of putting the claimant in the position they would have been in had the negligence not occurred. This may include:

• Wasted expenditure on transactions that should never have proceeded
• The difference in value between the position you are in and the position you should have been in
• Consequential losses flowing naturally from the negligence
• Loss of chance, where the negligence deprived the claimant of a valuable commercial opportunity
• Interest on losses from the date they were suffered

The Supreme Court’s decision in SAAMCO (South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191) remains the leading authority on scope of duty a professional is only liable for losses falling within the scope of the specific duty they undertook. Understanding this principle is fundamental to accurately scoping any claim.

Contributory Negligence and Contribution Between Advisers

It is important to note that a claimant’s own contributory negligence can reduce the damages awarded. If a director took unreasonable commercial risks, ignored clear advice, or failed to take steps to mitigate their loss, a court may apportion responsibility. Equally, where multiple advisers contributed to the same loss, for example, a solicitor and an accountant both gave negligent advice on the same transaction issues of contribution between them arise under the Civil Liability (Contribution) Act 1978.

Acting Quickly: Why Early Legal Advice Matters

The longer you wait to take advice on a potential professional negligence claim, the greater the risk that evidence is lost, witnesses become unavailable, or limitation periods expire. Early investigation also allows you to assess whether the professional’s insurers can be engaged for a negotiated settlement, which often represents the most cost-effective resolution

How LexLaw Can Help

At LexLaw, we act for companies, directors, shareholders, and insolvency practitioners pursuing complex professional negligence claims against solicitors, accountants, auditors, financial advisers, and other professionals. Our team has extensive experience handling high-value disputes involving failed transactions, negligent tax advice, insolvency-related losses, and defective professional services. We provide strategic, commercially focused advice from the earliest stage of investigation through to settlement negotiations and High Court litigation where necessary. If you believe negligent professional advice has caused your business or personal financial loss, our specialist professional negligence solicitors can assess your position quickly and advise you on the most effective route to recovery.