When Will I Be Made Personally Liable For Business Debts?
A concern for many directors whose business is starting to struggle is the threat of being made personally liable for business debts if the business goes into liquidation.
Even though a ltd company structure gives some protection to directors there are certain circumstances where you could be made personally liable for some or all of the businesses debts.
Here are a few examples:
Bounce Back Loans
If it’s found that you have spent the bounce back loan on anything other than the benefit of the company then an insolvency practitioner has a duty to recover that money from you. Extensions, watches, cars and expensive holidays are a BIG NO NO.
You have signed a personal guarantee
This might be for your building premises, suppliers, bank loans, or merchant terminal advances. If you have signed a PG then if the company goes into liquidation the creditor will come after you personally for the money owed.
Overdrawn Directors Loan
If you have taken too much money from the company and created an overdrawn directors loan account. Most directors pay themselves a small amount of salary and the rest as a dividend. This is fine when a company is making money. When your business stops making the profits it once did or needs to close suddenly then it can leave the director in a very sticky situation.
Wrongful or Fraudulent Trading
When your company becomes insolvent your responsibilities change and you now must put your creditor’s interests above your own. You can’t pay yourself or other creditors in preference of anyone else and if you do, you could be made personally liable.
Paying a supplier over someone else or repaying a loan from a family member over other creditors, this makes the other creditors. position worse thus leaving you on the hook.
Selling Assets For Undervalue
A director who sells an asset for less than its worth will find themselves in hot water with an insolvency practitioner, in this case, it’s likely the insolvency practitioner will come to you for the difference in value. If you are planning on selling some company assets it’s important that you have them valued independently and a sale agreement was drawn up by a solicitor.
If you become insolvent you have to put your creditor’s interests above your own and failure to do this could end up costing you a lot more than you bargained for.
- Take advice early.
- Keep in communication with your creditors.
- Don’t bury your head in the sand.
If you want to learn more about company closure join me next Tuesday, 12th October at 12 for a free webinar. Book here.
I’ll be explaining everything about the company closure and answering any questions you may have.