What does it mean to go bust?
Going bust is simply when a business cannot continue to trade as it owes too much money to its creditors. Creditors are likely to have launched legal action against the company to recover debts. In addition, there is not enough cash in the company to survive. Consequently, it enters a terminal insolvency process like administration or liquidation.
Is my house at risk?
In the majority of circumstances, you will not lose your house or personal belongings if your limited company goes bust. This is because, as the name suggests, the liability is limited. This type of protection means any consequences stay within the business. However, under certain circumstances you can be vulnerable
Risk to your home when your limited company goes bust:
You personally guarantee a company loan
If your company has a poor credit record, is small, or is not well established, finance providers may request a personal guarantee before approving any loan. If you cannot repay the loan, or if your company goes bust, then the creditors will come to you for repayment. You will be held personally liable. If you have not got the capital funds then your home and any other personal belongings may be at risk should you be made bankrupt. Understand more about directors personal guarantees here.
You have borrowed from lenders and they insist on a charge over your house in addition to a personal guarantee
When taking out a company loan, the lenders who provide the loan may be worried that you may not be able or willing to pay it back if something goes wrong. As such, they could request a charge over your house. If your company goes bust, some lenders may be out of pocket even if they have a personal guarantee. Under these circumstances the lender may insist on a charge on your property as extra security. This will mean that it will be paid ahead of other creditors once or if the property is sold.
Note: It is important to know that any of the COVID recovery loans i.e. Bounce Back Loan or Recovery Loan cannot be secured against the directors primary residence..
You have an overdrawn directors account
It is quite common for directors to have an overdrawn loan account. This is when the director takes money out of the company for personal use, but it has to be repaid at some point and accounted for as per any other transaction. The issue comes when the company goes bust and the loan is not repaid. The liquidator or administrator will pursue the money, as you are a debtor of the company. Personal bankruptcy is a risk that could mean repossession of your house.
You are found to be guilty of wrongful or fraudulent trading
When the IP investigates the conduct of the director(s) they may find that you, as the director, ignored creditor interests and wilfully piled on debt knowing that it could not be repaid. This is a serious breach of the Insolvency Act and may well result in you becoming personally liable for some, or all of the corporate debt. Such actions against directors are rare but none the less they do happen.
So, your house is not at risk and you have nothing to worry about if;
- You have no any personal guarantees,
- You haven’t wrongfully traded
- You can repay your overdrawn directors account,
If you are unsure or would like any further advice, speak to one of our professionals today.
Additionally, if you would like to liquidate your company, call us on 0800 9700539 or you can fill out a form on our www.liquidatemycompany.com website and get a quote in minutes. We can talk you through the process, organise the legal paperwork and begin proceedings.