If my ltd / limited company goes bust will I lose my house / home?

As a general rule, directors and/or shareholders are not personally liable for the debts of their company. This is the main reason why directors and shareholders incorporate limited companies, limiting their liability should the company be wound up.

A company is a separate legal entity to its directors and shareholders. As such, a company can own its own assets and incur its own debts and liabilities. A Shareholder will only be liable to pay any unpaid share capital, which will usually a nominal amount.

Wrongful / Fraudulent trading

By incurring additional trading losses, directors can be exposed to personal liability for some or all of the company’s debts under actions of wrongful or fraudulent trading. Therefore, it is important that directors seek advice at the earliest opportunity when they become aware that their company is insolvent. The good news is that we are here to help.

In order to minimise the chances of being perused in respect of wrongful or fraudulent trading, as soon as you become aware that your business is insolvent, the best option is to cease trading and seek professional advise.

Personal Guarantees

Directors will often sign personal guarantees (PG's), usually to banks, asset finance companies, landlords and certain trade creditors. If you have signed a guarantee, you may become personally liable for any shortfall the creditor suffers should the company enter a formal insolvency procedure, such as Liquidation or Administration. Where a guarantee has been signed by more than one guarantor, each of the guarantors will be jointly and severally liable. Directors that have signed a guarantee can be motivated to continue trading an insolvent company in order to avoid personal liability, resulting in the company incurring greater losses and exposing all directors to claims of wrongful or fraudulent trading. In the first instance, a director should ask the creditor to provide a copy of the guarantee. If the creditor is unable to produce a copy, they will not be able to enforce it. This is because a guarantee must be evidenced in writing under the Statute of Frauds 1677.

Overdrawn Loan Account

It is not uncommon for shareholders and/or directors to have an overdrawn loan account with their company. If a director / shareholder has such a loan at the point their company is placed into liquidation, the position will be reviewed by the duly appointed liquidator and settlement proposals will be sought. If the director / shareholder is unable to settle their loan, the appointed liquidator may consider taking legal proceedings against them for repayment. It is at this stage that the risk of them losing their home becomes a problem. It is advisable that a director / shareholder contact their accountant to ascertain whether such a loan exists before commencing the liquidation process to establish their potential exposure.

A director may also find themselves indebted to their company / the liquidator if they breach their fiduciary duties prior to the liquidation process. This may result in them having to compensate, repay or make good certain transactions. This may lead to them owing money to the company no different to the loan account example detailed above.

Take Early Advice

If your company is facing financial difficulties, and you are concerning about your house / home, getting advice at the earliest moment will almost certainly reduce the risk of you losing your home.

Call us today on 0800 009 6450 if you have any questions.

Credit Rating

You might also be concerned about any adverse effects on your personal credit. Find out if putting a company into liquidation affect your credit rating.