“A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?”
Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. This failure to make a decision is really what could land you in trouble.
What Happens When a Company Goes Into Liquidation
The liquidation process is designed to both protect creditors’ interests and provide clarity for directors. A typical process looks like this:
- A licensed insolvency practitioner is appointed to oversee the entire procedure. They’ll be responsible for valuing and selling the company’s assets, investigating its financial history, and distributing proceeds to creditors.
- All company assets are then reviewed, including physical equipment, property, intellectual property, and outstanding invoices. These assets are valued and sold to generate the maximum possible returns for creditors, with the goal to efficiently convert all company resources into cash.
- Next, creditors are formally notified and invited to submit their outstanding claims and the liquidator categorises and validates these claims. Secured creditors, preferential creditors, and unsecured creditors can then be paid accordingly.
- The company is formally dissolved, all bank accounts are closed, and the company is removed from the official business register.
What Happens to a Director in Liquidation
To minimise negative fallout, the key is to approach liquidation responsibly, work closely with a licensed insolvency practitioner, and act quickly.
Your personal risk as a director rises the longer you delay taking action as, without a voluntary liquidation, creditors could force a compulsory liquidation. In this situation, the Official Receiver is appointed to liquidate the business and will investigate the activity of directors in the process – known as a conduct report. If they can prove there was wrongful trading, (for instance, you have taken credit from a supplier) then you could be made personally liable.
This is known as the “lifting of the veil of incorporation” that protects directors under limited liability and it can make you liable for PAYE, VAT, and creditors monies. Additionally, the directors may face disqualification under the Company Directors Disqualification Act 1986 for up to 15 years, with the most severe consequences extending to the loss of personal assets like your home.
All this means is that it is vital to protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation, or consider a company voluntary arrangement if the company is viable.
Can I be a director of a company after liquidation?
Yes you can; contrary to popular belief, company liquidation does not permanently prevent you from being a company director. You can absolutely establish or join another company, with two key caveats: you must not have been disqualified as a director, and you must not be bankrupt.
In most cases, directors can continue to manage and establish new companies following voluntary liquidation. Nonetheless, certain circumstances might trigger director disqualification, and failing to act appropriately could mean you face devastating personal consequences. This could arise from:
- Continuing to trade while the company can’t pay its debts
- Taking credit knowing repayment is impossible
- Neglecting proper financial record-keeping
However, be aware that there are strict naming rules to consider – your new company cannot have a name that is the same or similar to the liquidated company. For more information on this read our page about starting a new company after liquidation.
Can directors claim redundancy in liquidation?
Yes, if you’ve been employed by the company and received payments through PAYE, you may be eligible to claim redundancy directly from the government. The process is surprisingly straightforward – typically taking around 20 minutes to complete a form. While some companies offer to handle this for you, be cautious of operators promising quick returns. The process has been open to fraud and, as a result, The government are increasingly cracking down on operators that claim to be able to get money back when there is not enough “paperwork”. It isn’t worth the risk and our advice is simple: if a redundancy claim assistance service sounds too good to be true, it probably is. The most secure route is to handle the claim yourself or seek guidance from a reputable insolvency expert.
Can a director of a liquidated company get a mortgage?
Mortgage lenders are primarily interested in your ability to make consistent payments over time. While losing a company salary might initially seem concerning, it won’t necessarily prevent you from securing a mortgage. If you’ve secured a new job or established another business, a previous company liquidation shouldn’t significantly impact lending decisions.
However, lenders may become more cautious if you have a history of multiple liquidations. The type of liquidation matters significantly; a creditors voluntary liquidation is viewed far more favourably than a compulsory liquidation. Whilst a voluntary liquidation demonstrates proactive financial decision-making, which can reassure potential lenders about your financial reliability, a compulsory liquidation indicates that you left the decision too late.
What if I have signed personal guarantees?
Personal guarantees can be a significant concern for directors considering company liquidation. If you’ve signed personal guarantees or indemnities to lenders, these could be called in if the bank cannot recover its money from the company. While this might sound frightening, it’s crucial to understand that delaying liquidation won’t prevent these guarantees from being activated – and waiting could actually expose you to far greater financial risk.
Since December 2020, HMRC now ranks ahead of floating charge holders in any liquidation, which can impact how lenders with personal guarantees recover their funds. This change means that your personal exposure could potentially increase, making prompt action even more important.
The good news is that most banks are willing to negotiate repayment plans for personal guarantees, provided you actively work with them to reduce their exposure. One piece of advice is to always make sure that all tax returns, VAT returns and annual returns have been completed and sent in and that other “compliance” issues are dealt with wherever possible. These are important processes that help protect you as individual directors and demonstrate that you have been acting properly.
What you should do
You need to learn more about the options. This is clearly a general guide so if you have any worries at all, please just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:
Just one CALL will help relieve the stress and get you out of the mess.
Why not call 08009700539 or 020 7887 2667 now?
We could help you start the liquidation process today.
(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP) or Eric Walls (IP) on 07787 278527)
Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while, the stress will go and you can focus on other things that are more important.
Want more information on liquidation? Get our new free 2024 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back Loans
We are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, We can help solve your problems, but only if you talk to us. Call 0800 9700539 for help.or email us your worries at help@ksagroup.co.uk
