Can I walk away from a limited company with debts?
Yes, directors can walk away from a limited company with debts, but whether they can do so without legal or financial consequences depends on how the company was managed, the nature of its debts and if any personal guarantees were made by the director. Directors should also consider any liabilities that may have been incurred during their tenure.
How to walk away from a limited company
There are different methods that allow a director to walk away from a limited company, the appropriate method will depend on the director and company’s situation, it’s important to consider them carefully.
- Voluntary Liquidation
By putting an insolvent company into a Creditors Voluntary Liquidation (CVL), it is formally closed by an insolvency practitioner, writing off unsecured debts and allowing a director to walk away from the company. - Dissolution
Dissolution is designed for companies that have stopped trading and have minimal or no debts. It should not be used as an alternative to a formal liquidation procedure, such as a Creditors Voluntary Liquidation (CVL). Directors can apply to have their company struck off at Companies House if it meets the relevant dissolution criteria. If successful the company will close, ending a director’s responsibility. However, if the dissolution criteria are not adhered to, a company director can still face fines and/or prosecutions after the company is closed and dissolved. - Selling the Business
If a sale of the company is being considered, the company must be sold legally and transparently at market value, along with its assets. A director’s responsibilities would come to an end once the transaction has been completed, however, they would still be responsible for the correct handling of the sale and their actions while in directorship. - Resign as director
Directors can end their directorship and responsibilities to a company by resigning, provided there is at least one actively appointed director remaining at the company. If the company later faces insolvency or legal issues, your actions as a director can be investigated. Additionally, if you have personal guarantees for the company’s debt, they can still be valid and enforceable potentially making you personally liable.
I want to liquidate my company but other shareholders don’t. What are my options?
If you want to liquidate your company but other shareholders do not, initially, you should review the Shareholder Agreement and the company’s articles to understand the specific provisions and requirements for liquidation in your case.
A director can propose the liquidation, but it’s essential to achieve the agreement of the majority, typically 75%, of shareholders before the process can proceed. If there’s a deadlock, especially in a 50/50 ownership situation, consider negotiation, buying out the other’s share, resignation, or, as a last resort, legal action. In all scenarios, if your company is insolvent, we are able to provide free advice.
Can I be held personally liable for company debts if I walk away?
Typically, a director won’t be personally liable for company debt, even if they walk away. Directors are protected by limited liability, meaning their company’s debts are separate from their personal finances.
Regardless of how a director walks away from their limited company, there are circumstances wherein a director can be personally liable for their company’s debts. These can include but are not limited to:
- Personal guarantees
If you have given personal guarantees for any of the company’s debts, you will remain liable for those debts even after resigning.
Find out more about what happens to personal guarantees in insolvency - Director conduct
If there were instances of wrongful or fraudulent conduct during your tenure as a director, you might be held personally liable for the company’s debts in relation to those actions. - Contractual obligations
Whilst serving as a company director, if any contractual commitments are deemed to have been broken, you can still be held responsible or personally liable for company debts.
Can I walk away from a limited company with debts and start a new one?
Yes, directors are free to set up a new company even if they have resigned, sold their company or had a company go through the dissolution process. Directors can also liquidate a company and continue to trade the business through a newly registered or existing company. Assets can be purchased from the insolvent company through a CVL, which is commonly known as a pre-pack liquidation.
There are usually no restrictions on starting a new limited company, apart from the reuse of the insolvent company’s name in any subsequently formed companies. However, if a director is found guilty of fraudulent or wrongful trading, they may be disqualified and therefore unable to set up a new company.
Find out more about Pre-pack Liquidation hereHow we can help
If you’re considering walking away from your company, and it has debts, it’s important to understand the implications of the approach you choose. This includes the potential impact of any personal guarantees you’ve given and the legal obligations you hold. We offer free advice on navigating these options, including the intricacies of formal insolvency proceedings, allowing you to make informed decisions that align with both your personal and company’s best interests.
- Speak with our initial advisers via phone or online chat. If we can help, we will arrange a free consultation with one of our consultants to discuss your situation in more depth.
- During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or what alternative options are available.
- After your consultation, if there is an appropriate route forward, we will issue the relevant documentation for you to formally engage us.
In summary
Directors have the option to resign and walk away from a limited company with debts, effectively ending their directorship. Factors that will influence the most suitable method for stepping down include the company’s solvency, its level of debt the way it was managed, and any personal guarantees the director may have signed. For directors intending to close the company while walking away, it’s important to assess the company’s debt situation thoroughly and choose the most fitting closure procedure based on these financial circumstances.
Case Studies
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
Derwent Castings Limited
Kelly Burton • Metals • Creditors Voluntary Liquidation (CVL)
Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher than the expected dividend of 60p in the pound.
A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.
The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.
Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.
Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.
“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.
“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”
Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.
However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.
In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.
Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.
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