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Licensed Insolvency Practitioners With National Coverage

0800 9700539
07833 240747

Worried Director What Will Happen To Me After Liquidation?

picture of bankruptcy petition

Will I Go Bankrupt If I Am A Director Of A Company That Goes Bust?

in Bankruptcy Directors Duties in Insolvency and their Implications Worried Director What Will Happen To Me After Liquidation?

This is often the biggest worry of directors of companies which are in financial trouble.  Generally speaking the whole point of a limited company is that it allows the people running it, i.e directors, to have a LIMITED liability if things go wrong.They are not completely immune, as the Companies Act 1985 and the Insolvency Act 1986 confer certain responsibilties on directors to act reasonably and fairly. So, for instance, if you lie, deceive, and willfully/recklessly pile on debt to a company that subsequently goes into liquidation then you could be held liable personally.  This is know as "lifting the veil of incorporation" What is the process? If the company goes into liquidation or administration then the liquidator, who can be appointed by the court or the company's creditors, has to investigate the actions of the directors.  This is so that creditors can understand why the company failed and if there is any culpability.If there has been bad behaviour, such as fraud, then the court can hold the director/s liable for the company's debts.  This may well result in bankrupcty.  In addition, the directors have to show that they have acted in the best interest of the creditors once the company becomes insolvent.  As such, any actions that may prejudice their position can be reversed.  The two most common such actions arePaying a preferenceA preference is when the director/s pay one creditor over another because they desire them to be better off.  This might be a family member or indeed someone that has a personal guarantee for a loan.​​A transaction at an undervalueA transaction at an undervalue is when assets of the company are moved to another legal entity such as an associated company, or to the directors personally, at a knock down price so depriving the insolvent company of their actual worth.Both of these actions can be reversed up to 2 years after the company entered insolvency. When might a director become bankrupt? Veil of Incorporation If the liquidator takes action by lifting the veil of incorporation due to fraud and negligence as mentioned above and holds the director personally responsible for the debts of the company. Overdrawn Directors Loan Accounts This is a far more common occurence.  In effect, this means that the director/s owe money to the company. They may have borrowed or they have extracted money in the form of dividends when there were no distributable reserves (effectively the same thing).This tends to happen when directors want to maintain their incomes, despite the company being in difficulty, because they believe, rightly or wrongly, that the company will move back into profit.  The problem occurs if the directors owe the company money and it has gone bust!The liquidators will then pursue the directors for the money as they are a debtor.  This can put severe financial pressure on directors as they may have also lost their ability to earn money from the work they did as the director!Normally liquidators will try and do a deal with director to repay the debt or they may opt for an Individual Voluntary Arrangement to pay back the debt.  However, if the liquidators believe there maybe assets belonging to the director then they may issue a bankruptcy petition. Personal Guarantees on Loans It is not uncommon for lenders to small businesses to seek the added security of personal guarantees from the company's directors.  If the company goes bust then the lenders will seek recourse from the directors.  This can lead to bankruptcy and the resultant loss of your home and other assets.  As mentioned above the directors may have lost their main way of earning a living from the company anyhow. 

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Will I Go Bankrupt If I Am A Director Of A Company That Goes Bust?

Business Asset Disposal Relief

in Directors Duties in Insolvency and their Implications Worried Director What Will Happen To Me After Liquidation?

What is Business Asset Disposal Relief​? Business Asset Disposal Relief which allows you to pay less capital gains tax, at 10% on gains of all qualifying assets which are sold. It is applied when you sell your business, and usually in a Members Voluntary Liquidation (MVL).  Capital Gains Tax is the tax on profit when you are selling something which has increased by value.  Am I eligible for the relief? To qualify for Business Asset Disposal Relief , you must meet one or more of the following criteria:You must be disposing all or a part of a business, where you were a sole trader or business partner. Even if you dispose of the assets after, you are still eligible. However, you must own the business for over a year before you sell it and if you are closing the business, the assets must be sold within 3 years. You have at least 5% shares, securities or voting rights within the company being sold. You are also eligible if you have had the chance to buy your shares at least a year before the sale. For this, you must have been an employee of the firm for at least a year, and the company must be one which focuses on trading, instead of those which involve little trading, for example, those who focus purely on investment. You lent an asset to the business and it is being sold. This only applies if your assets were used for a year before the shares were sold, or if you have already sold 5% of your part of the business or shares. You’re selling shares which you got through an Enterprise Management Incentive scheme, after the 5th April 2013.How do I work out the tax I will have to pay?Work out the gains of all the qualifying assets Add all the gains together (deduct any losses) to get the total taxable gain available for Business Asset Disposal Relief Deduct any tax-free allowance You will pay 10% tax on what is left.How do I actually claim for Business Asset Disposal Relief ? To claim for Business Asset Disposal Relief  fill in Section A of the Entrepreneurs’ Relief Help sheet here https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet , or you can do it via your Self-Assessment tax return. During your lifetime you can claim up to £1 million relief, with no limit on how many times you can claim for it.Following the first Labour Budget it has been it has been confirmed that the relief remains but from April 2025 the rate will go up to 18% from the current 10%

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Business Asset Disposal Relief
helpful advice for trading whilst insolvent

Trading Whilst Insolvent – Worried Directors Guide

in Directors Duties in Insolvency and their Implications Worried Director What Will Happen To Me After Liquidation?

Trading whilst insolvent is a legal term used to describe a business which continues trading when it cannot pay its debts and its liabilities are greater than its assets.  It can lead to a breach of several provisions of the Insolvency Act 1986 which can result in the directors being held personally liable

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Trading Whilst Insolvent – Worried Directors Guide

Does Liquidation Affect My Credit Rating?

in Worried Director What Will Happen To Me After Liquidation?

This is a question we get asked a lot. It is a legitimate concern for any director who may be finding that their business is not viable and they need to liquidate the company.  The ability to carry on with ones life without the episode hanging over you in the form of a poor credit rating is important.  Just because your company or business went into liquidation it doesn't mean you are a failure and it doesn't automatically change your credit score at the likes of Experian or Equifax. Limited Liability Setting up a company to do business is a risky endeavour and that is why there is the system of limited liability companies.  A limited company allows an entrepreneur to take risks without it impacting their own personal finances.However, it should be remembered that directors have duties to run a company in a fair and responsible manner.  The Companies Act says they should "exercise reasonable care, skill and diligence" . If a director does not do these things and the company becomes insolvent then there is the possibility of the "veil of incorporation" being lifted and exposing them to personal financial risk.  This will effect their credit rating in that the debts of the company could be passed onto them.   The Insolvency Act 1986 places a very specific duty on directors of insolvent companies to act in the best interests of creditors. The most obvious example here of trading that can have personal implications is wrongful or fraudulent trading. Wrongful trading is most characterised by taking money and deposits from customers knowing that you will be unable to repay them and you are just using that money to pay other creditors.Following Covid-19 companies were able to draw on government support in the form of Bounce Back Loans (BBLs) and other help, but the use of these funds will come under increasing scrutiny as banks start to demand repayments.  If you have used BBL for purposes other than for the company to "bounce back" then you could be at risk. How would my credit rating be affected by a company liquidation? Once a company goes into liquidation, the company ceases to exist and the directors duties cease.  This does not appear on your personal credit rating.  But if you try and raise credit for a different company of which you are a director it will be flagged.  The credit rating agency will say something like "exercise caution as the director has had previous company failures".  It is simply a case of once bitten twice shy.  Normally, this does not cause a problem if it happened just once but if you have had multiple failures it will be difficult for your company to raise credit, no matter how well it is doing.  Insurance companies are particularly picky on this point so you will probably pay a higher premium for business insurance. Overdrawn Directors Loan Account If you take money out of the business as dividends when the company is not making a profit you are in effect borrowing from the company.  This is not a problem if you are confident that you can get back into profit and pay it back. However, if the business goes into liquidation then it is possible that the liquidator will demand that you pay the money back. If you cannot do this then the liquidator may take legal action against you which will appear on your credit file and in some cases may make you bankrupt. What about getting a new job? If you have been a director of a failed company and you are applying for a high profile job in national security or finance then it is likely that it will be flagged in what would be called an enhanced credit check or a "vetting procedure".  Whether it would stop you getting work is impossible to say as it would be at the discretion of the employer. However, it would look better if you went into a voluntary liquidation rather than just running down all the cash and waiting for a creditor to wind your business up.  I guess it would also not look good if HMRC lost large sums if you are applying for a job in national security or the government.Additionally, if you would like to liquidate your company, call us on 0800 9700539 or you can fill out a form on our www.liquidatemycompany.com website and get a quote in minutes. We can talk you through the process, organise the legal paperwork and begin proceedings.

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Does Liquidation Affect My Credit Rating?