The simple answer to this question is no – being a limited company means as a director, you are seen in the eyes of the law, as a separate legal entity. So, any company debts are not linked to your personal finance and assets. This is one of the attractions of being a limited company, rather than an unlimited company or sole trader.
But, there are some cases where this simple answer does not apply.
Situations where a director’s personal assets may be seized.
Taking out a personal guarantee
If a director takes out a personal guarantee, then the debt is in effect passed onto the director personally if the company cannot pay.
Often this occurs when needing a business loan; directors put personal possessions at risk for the sake of getting the loan/security. If unable to pay the loan later on, the legally binding contract, suggests the personal possession the loan is guaranteed against, will be seized. This is so the lender can sell the seized asset and get the money back they are owed.
Find out more about Personal Guarantee Insurance, which brings some protection in this case.
Acts of wrongful or fraudulent trading
If directors are failing in their legal duties then they may be held liable for any debts if the company goes into a terminal insolvency event, such as administration or liquidation. As part of any terminal insolvency the insolvency practitioner is required to investigate the directors’ conduct.
Directors may be found guilty of wrongful trading, when a director knowingly makes creditors position worse. Also when directors take actions they knew were unlawful i.e. fraud. In these cases, it is likely that the directors will be found personally liable for any debts that have been incurred.
Acts of misfeasance
This is when there are breaches of fiduciary duty, and what is called ‘improper activity’, by directors. For example, inappropriate use of dividends and unauthorised remuneration to directors.
Bailiffs and seizing personal assets
It is important to note that bailiffs cannot just appear at a business site and remove personal belongings. Personal belongings are only at risk of being involved in instances as described above.
Only High Court enforcement officers with a warrant have the power to force entry to a business premises. They are then not legally able to remove anything other than company goods; cash, company vehicles, inventory, machinery and office equipment. Items on hire-purchase are not included.