As a director entering into liquidation, you’ll need to do a lot of research to find out what else could be affected. In this blog, we’re answering the question, will I lose my pension if I liquidate?

Will I lose my pension if I liquidate?

In most cases, you won’t lose your pension if you liquidate your company. However, a report came across my desk this week that caught my attention, so I want to address any potential problems with pensions when entering liquidation.

When a limited company becomes insolvent, your responsibilities change. You’re no longer trying to make profits for the shareholders, you’re trying not to make the creditor’s position any worse. If you do things like trading while insolvent, you will be making their positions worse, and you will have to face the consequences of wrongful trading, which can be very serious. These duties are known as a director’s fiduciary duties.

There is a director who has been faced with a huge personal liability from an insolvency practitioner. This director has been accused of misfeasance, which can include wrongful trading and fraudulent trading. Under the 1986 Insolvency Act, there are a set of rules that the director has to follow.

Business example:

In this case, we’ll call the company ABC Limited. The director’s company had been going for a long time and was very prosperous. The company began in 2002 and was liquidated in 2016. We know this is a few years ago now, but the company has been involved in long legal proceedings. The director’s actions towards the end have caused its demise.

Misfeasance can include the mismanagement of company funds. The director of ABC Limited has done the following:

Bought two Lamborghinis, two Bentleys, a Porsche, and bought and run a helicopter. It’s not often that you hear of company directors buying themselves these types of items, but it can happen.

This lavish spending has put the company in a poor state, leading to liquidation. The judgement that has been made is for £996,000. Of course, the director is saying that they do not have all of that money. After further investigation, the insolvency practitioner has found that this director has a sizeable pension pot.

The ruling of the high court was that the director must draw down their pension benefits to pay the debt. The director has resisted this action for a number of years, and it has recently been overruled by the high court.

will i lose my pension if i liquidate

What are the implications of this case?

This doesn’t mean that the director has to assign all of their pension pot to pay off the debt. Instead, they have to draw down their pension to pay the debt.

This case just goes to show that misfeasance accusations have serious ramifications. Here’s a summary of the key points.

  • Company directors have legal obligations
  • The High Court can order a director to use their pension to pay off debts resulting from misfeasance claims. This is an extension of previous legal reasoning in similar cases.

If your business is insolvent and you’re heading into liquidation, seek advice. You don’t have to start spending lots of money on lavish items to find yourself in trouble. It could even come from taking all the money out of your company and lending it elsewhere. Find out about intercompany loans.

When you become insolvent, you need to seek professional advice as soon as possible. Most people won’t end up with a bill as large as the director we’ve been discussing, but some people will. Don’t bury your head in the sand, get some advice today.

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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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