If I liquidate my company will I lose my home?
If you are thinking about liquidating your business then you are probably also wondering what are the risks to you and your family personally if you decide to liquidate your company.
With business insolvency figures rising month on month many directors are faced with the prospect of having to close their companies. If a business can no longer pay its debts on time and the companies liabilities are more than the companies assets then the director will need to seek insolvency advice. One of the biggest worries of directors is the thought that they may lose their family home as a result of placing their company into liquidation.
When a director sets up a limited company they benefit from limited liability. This means that when a business is placed into liquidation and fails the debts stay with the business, it’s the business that owes the money and not the director personally. This means that in the vast majority of company liquidations a director does not lose their family home or any personal assets.
There are some scenarios where your family home and personal assets could be at risk though, I’ll try and explain them all as best I can here.
Personally Guaranteed Loans and Suppliers
There are many suppliers or lending institutions that will insist that a director personally guarantees any loan or credit that is given to the company. This means that in the event of company liquidation, the creditor will pursue the director personally for any money left outstanding.
A lender has put a charge on your house
There are lenders who will insist that they place a charge over your family home. This could be done when you take out the loan so it gives them extra security or after your company goes into liquidation. There are certain lenders that will only restructure your business loan after you liquidate once you have agreed to them having a charge against your family home. This action makes sure that the lender is paid back ahead of other creditors if you were to be made personally bankrupt.
One of our extended teams has extensive experience in dealing with personal guarantees and has provided help and support for many clients of 1st Business Rescue.
We will help directors review the circumstances surrounding the taking of their personal guarantee. Our aim is to highlight any issues or irregularities before speaking with the lender. A lender will also need to take into consideration a director’s personal financial circumstances when trying to enforce a personal guarantee.
If you are worried about the ramifications of signing a personal guarantee it’s important to act quickly. Get in touch and we can help you understand the options that you have available.
Overdrawn Directors Loan Accounts
It is quite common for directors to have overdrawn loan accounts. If you have an overdrawn directors loan account in a liquidation, the loan is classed as an asset of the company and an insolvency practitioner will look to recover that money from the director once they become appointed as the liquidator. This can be a real big issue for some directors as they may not know they have an overdrawn loan account or it may be much larger than they had anticipated. If you have equity in your family home and do not make any attempts to repay your overdrawn directors loan account then the insolvency can and will pursue you for the money. This could end up in the bankruptcy court if no satisfactory resolution is found. If you are concerned about an overdrawn director loan account you must take advice as early as possible.
Wrongful or Fraudulent Trading
When a company goes into liquidation, the insolvency practitioner is duty-bound to carry out an investigation into the conduct of the director and will look closely at how the company was run, especially in the months leading up to the point of liquidation. If the insolvency practitioner discovers that you have taken on additional credit without the hope of ever paying it back or that you put your interests ahead of the creditors then you could be found guilty of wrongful or fraudulent trading. If you are found guilty of this by the insolvency practitioner then you could be made personally liable for some or all of the companies debt. If you do not have the means to repay this money and don’t come to a civil settlement with the insolvency practitioner then you could end up in bankruptcy court and your personal assets and family home could be at stake.
Can a director of a liquidated company get a mortgage?
Yes, a director of a liquidated company can still apply for a mortgage. However, the process may take longer. Mortgages generally involve you borrowing a reasonable amount of money, so lenders will need to assess the likelihood of you being able to pay the mortgage. It’s up to the lender whether they choose to offer you a mortgage.
The most important thing that you can do if you are worried about losing your home as a result of company liquidation is to take advice as early as possible.
Being proactive and discussing your concerns upfront gives you the best possible chance of a favourable outcome. Insolvency practitioners would much rather settle an overdrawn directors loan or wrongful trading claim without the added costs and complexities of a long-drawn-out litigation battle.
Speak to one of our team today about the specifics of your case, we offer free advice with no judgment and no obligation. You will feel better once you understand exactly what your options are. We can’t promise that all the problems will go away but we can help you deal with them.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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