If My Limited Company Goes Bust Will I Lose My House?

• The content on this page has been written by Keith Steven and approved by Chris Ferguson Licensed Insolvency Practitioner and Managing Director of RMT KSA

As insolvency practitioners, we frequently address directors’ worries about losing their homes if their company goes insolvent. This guide outlines the scenarios where your personal assets are protected, and where they may be exposed.

When Your House Is Generally Safe

(The Most Common Scenario)

When you run a limited company, your personal assets (like your house) are usually protected if the business fails. This is the core idea behind “limited liability.”

Understanding Limited Liability and Your Personal Assets

• The “Veil of Incorporation”: Legally, the company is a separate entity from you. This separation means business debts typically stay with the business, not with you personally.

You typically don’t need to worry about losing your personal assets if:

• You have not signed any personal guarantees  for company debts.
• There are no charges secured against your personal property for company loans.
• Your Director’s Loan Account is not overdrawn (or you can repay it promptly if it is).
• You have acted responsibly and have not engaged in wrongful or fraudulent trading.
• The company has met its NIC obligations, or any failure was not due to fraud or serious neglect.

Your House May Be At Risk

While limited liability offers significant protection, these specific contractual arrangements make you personally responsible for company debts, potentially putting your house at risk.

Personal Guarantees for Company Loans

Why they happen: Lenders ask for a personal guarantee if they want extra security.

What it means: You personally promise to repay the loan if the company cannot.

The risk: If the company defaults or becomes insolvent, the lender can legally pursue you directly for the money owed.

Consequences: If you lack the funds to repay, you could face personal bankruptcy, which might put your home and other assets at risk.

Charge Over Your House as Loan Security

Why it happens: Lenders often require more than just a personal guarantee—they might insist on securing the loan against your property by placing a “charge” on it.

What it means: Similar to a mortgage, this gives the lender a direct claim on your property if the loan isn’t repaid.

The risk: If the company fails, the charge gives the lender priority. They can force the sale of the property to recover their debt, getting paid before most other creditors.

Your House Is At High Risk

These are serious issues where the liquidator or a government body (like HMRC) can seek to make you personally liable for the company’s debts due to your actions as a director.

Overdrawn Director’s Loan Account (DLA)

What it is: This occurs when you take money out of the company for personal use that isn’t salary or a dividend, creating a debt you owe back to the company.

The problem: If the company becomes insolvent before you repay this loan, the outstanding amount is considered an asset of the company.

The risk: The **liquidator or administrator** appointed to manage the company’s affairs has a legal duty to recover this money from you.

Consequences: Failure to repay could lead to personal bankruptcy proceedings against you, potentially endangering your home.

Wrongful or Fraudulent Trading (Director Misconduct)

What it involves: This is a serious issue where a director continues trading and incurring debt when they knew (or should have known) the company was insolvent. Fraudulent trading involves deliberate dishonesty.

Investigation: The appointed insolvency practitioner (IP) will investigate the directors’ conduct leading up to the insolvency.

The risk: If found guilty of wrongful or fraudulent trading, a court can order you to personally contribute to the company’s debts.

Consequences: This personal liability could be substantial and put your personal assets, including your house, at risk.

HMRC Personal Liability Notices (PLNs)

What they are: HMRC can issue a PLN making a company director personally liable for unpaid company National Insurance Contributions (NICs).

When they are issued: HMRC may issue a PLN if they believe the failure to pay NICs resulted from fraud or serious neglect by the company officers.

The risk: If you are made personally liable via a PLN and cannot pay, your personal assets, including your house, could be at risk.

Frequently Asked Questions (FAQs)

Can I lose my house if I gave a personal guarantee?

• Yes. If your personal guarantee is called in and you cannot repay, the creditor may take legal action (such as obtaining a County Court Judgment) which could lead to a charge being placed on your property or personal bankruptcy proceedings.

What if my house is jointly owned with my spouse?

• The protection of limited liability still applies to your spouse unless they also signed the personal guarantee. However, if you are made bankrupt or face a charge, the creditor or bankruptcy trustee can claim your share of the equity in the jointly owned property.

Can HMRC take my house if the company owes tax?

• HMRC cannot seize your home for general company tax debts (like Corporation Tax or VAT) unless you gave a personal guarantee, or you are found guilty of fraud or serious neglect (which may lead to a PLN for NICs).

What happens to my mortgage during liquidation?

• Your mortgage remains a separate secured debt on your property and is generally unaffected by the company’s liquidation. However, if creditors pursue legal action against you personally (due to a PG or misconduct), and your home is threatened, your mortgage lender will become involved in any subsequent legal action.

Your Best Course of Action

If you are unsure about your situation or concerned about potential personal liability, it’s vital to seek professional advice promptly.

• Important Note: Repossessing a home, even during bankruptcy, follows strict legal procedures and requires a court order. If you’re in this situation, consult an insolvency practitioner specialising in personal insolvency.
• Need Advice? Speak to a Licensed Insolvency Practitioner (IP). Early advice from an IP can clarify your personal position, reduce the risk to your assets, and ensure you comply with your legal obligations as a director.