If you are the director of a company that is going into liquidation, you are likely to have a lot of questions racing through your mind.
One of these questions might be about what will happen to your personal credit rating after your company has been placed into liquidation.
Members’ Voluntary Liquidation (i.e. a solvent liquidation)
If you are the director of a company that is going through the MVL process – i.e. it is a solvent company that is closing down – then your personal credit rating will not be affected.
Liquidation of an insolvent company
If your company is insolvent (i.e. it cannot pay its debts when they are due), the situation is a bit different. Usually, a company’s debts do not affect a director’s personal credit rating and have limited or no liabilities concerning the debt. However, there are some instances where this isn’t the case…
Neglecting director responsibilities
Directors must act in accordance with the Companies Act 2006 along with the Insolvency Act 1986. If you haven’t done so and have failed to keep accurate accounts and records, you could face personal liabilities.
One of the ways you can open yourself up to personal liabilities for the company’s debts is if you continue to take credit knowing that your company doesn’t have the resources to make repayments. In this instance, you are putting yourself at risk of personal liabilities for the company debts.
Sole traders
If you are a sole trader or an individual member of a partnership, you will be personally responsible for any debts. Your assets, such as your home or car, could potentially be put at risk. This is because the business is not a separate legal entity, so responsibility falls to the director personally. This can then have a great impact on any future business ventures or when seeking additional credit.
This is one reason why a lot of business owners set up a limited company instead of being a sole trader – so that any debts the business incurs are debts of the limited company, rather than of themselves personally. (You should discuss this with your Accountant.)
Personal guarantees
If you signed a Personal Guarantee when you took out a loan for the company, the terms usually state that the director must pay back the debt should the business enter company liquidation. So, if the company does become insolvent and be liquidated, then you will have to pay the debts as outlined in your Personal Guarantee.
Overdrawn directors loan account
If you have an Overdrawn Directors’ Loan Account (ODLA), it would mean that you are personally liable for that particular loan. Legal action can be taken against you by the licensed insolvency practitioner appointed on your company liquidation which could end up making you bankrupt. However, your insolvency practitioner will advise you on the best way to deal with your ODLA.
More information about liquidating your company
If you are personally liable for your business debts, you could stand to lose your personal assets if there isn’t enough left in the business to repay creditors.
Clarke Bell have been trading for more than 28 years and we have helped thousands of directors through the process of liquidating their company.
If you have any questions about the liquidation process, call us on 0161 907 4044 for your free and confidential advice.
Alternatively, just fill out our contact form and we will get back to you as soon as possible.
