I’m worried about Personal Liability for my Company’s Debts

Many Company Directors consult us about whether they could end up having to pay their Company’s debts personally if the business goes into Liquidation or Administration. They hear stories about creditors pursuing Directors for unpaid bills and quite rightly, they worry about it happening to them.

The whole point about trading through a Limited Company is meant to be protecting yourself against this, but unfortunately you can be held personally liable for some or all of its debts for a number of reasons:

  The most common is when you have given a Personal Guarantee to the Company’s bank or to the landlord

  Sometimes suppliers demand some form of guarantee to continue trading with the Company if it is struggling

  If you have taken money out of the Company as a loan

  If you take regular cash drawings, which are normally converted into a dividend at the year end, but the Company’s losses have wiped out its reserves and made any dividend illegal

  If you are found guilty of an offence like Wrongful Trading

  Under certain circumstances, if debts to HMRC are left unpaid

  If you have used a Bounce Back Loan or a Coronavirus Business Interruption Scheme Loan for non-business purposes

How do I deal with personal guarantee challenges?

These are complex issues, so getting expert advice is the best starting point. What actions you can take safely will depend on the up to date state of the Company’s finances, as well as your own. One solution would be a financial restructuring of the Company to avoid failure. If this is not achievable, it may be possible to deal with the personal risks by negotiating a consensual settlement with the creditors involved. If not, it may be best to consider negotiating an Individual Voluntary Arrangement (IVA) with some or all of the creditors who are demanding payment from you personally.

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