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If my limited company goes bust, will I lose my house?

If your company finds itself insolvent and going bust, as a director, you will be protected by limited liability. Limited liability means that the company directors’ finances are separate from that of the company. It means that if a company was to enter into liquidation, the directors’ personal finances will be protected. Generally, this means any personal properties wouldn’t have to be sold, however, if a personal guarantee has been signed, an asset, such as a house could be sold.

How could I lose my house?

The protection of limited liability means that during a liquidation, any personal assets such as a house will be protected. But there are some circumstances during a liquidation that could force a director’s hand to sell their property.

Personal guarantees

If the company has a poor credit record, or has not been open that long, it may be difficult to secure any finance loans. Providers may ask the company director to sign a personal guarantee as a form of security, so that the loan can be approved. If the company then finds itself insolvent and in need of liquidation, if the loan in question cannot be repaid by the process of liquidation, then the creditors in question can call on the personal guarantee in order to get repaid.

Directors loan account

It’s common for directors to have a director’s loan account. This is an account that the director can use to take money out of the company as a loan, as well as loaning money back to the company. Either transaction has to be repaid at some point and accounted for just like any other loan. If a company enters liquidation whilst the director has an overdrawn director’s loan account, owing money into the company, then a personal property could be sold in order to refund the overdrawn account.  

If you’re guilty of wrongful or fraudulent trading

During a liquidation procedure, the insolvency practitioner investigates the conduct of the director. If they find that the director has been fraudulently trading, or are guilty of wrongful trading and have deliberately been adding debt to the company, they could be in breach of the insolvency act and potentially become personally liable for the company’s debt.

How we can help

If you’re worried that your company may be facing financial difficulty and you’re concerned about the prospect of losing your home, we can help provide, confidential advice on your situation. From here we can help give you the available options on what would be best for your personal finances and the company’s.

  • Continue to trade – If there is a genuine chance that you could save the company, either through the protection of a formal repayment plan, or restructuring the company. A Company Voluntary Arrangement (CVA), would give you protection from your creditors whilst entering you into a monthly repayment plan. An administration, would also give you protection against your creditors, whilst giving the company the opportunity to keep trading at least temporarily.
Find out more about Company Voluntary Arrangements here
  • Individual Voluntary Arrangement (IVA) – An IVA is a personal repayment plan agreed between an individual and their creditors. It is an alternative to bankruptcy and in the case of a company going into liquidation, it will give a director protection from creditors and can allow them to keep their house.
Find out more about Individual Voluntary Arrangements here

In summary

With the protection of limited liability, a director’s personal assets are safe, even if their company enters into liquidation. However, a director could end up losing their house if they’ve signed a personal guarantee to secure a loan, or if they have an overdrawn director’s loan account, owing the company money. If a director is found guilty of misconduct, through wrongful or fraudulent trading, they could also be held personally liable for the company’s debt.                     

Beverley Horton

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