Will company liquidation affect my personal credit rating?
Liquidating your company, usually, will not affect your personal credit rating. A limited company is classed as a separate legal entity to the associated directors and shareholders, protecting you personally, through limited liability.
What is limited liability?
Limited liability means that as a company director, you are not personally liable for the company’s debts. The company is a separate legal entity, so its financial liabilities do not automatically become yours.
Generally, this means directors won’t be held personally liable or responsible for their limited company’s debts.
When could a company liquidation affect your credit rating?
Although limited liability covers most scenarios, there are exceptions where the protection isn’t absolute, and you can be personally liable for company debt, which can impact your credit score. These can include but are not limited to:
- Directors Loan Account (DLA)
A DLA is an account of transactions between you and your company excluding a salary and dividends. If this is overdrawn during a liquidation procedure, you can be personally liable for the debit. We will work with you to find the most suitable solution if you have an overdrawn DLA.
More on overdrawn director’s loan accounts in insolvency - Personal Guarantees (PG)
If you have signed personal guarantees for your company and it enters into liquidation, the loans will crystalise on liquidation and you will become personally liable, potentially affecting your credit rating. If you’re concerned about a personal guarantee liability, in some cases lenders may be open to negotiation.
What happens to personal guarantees in insolvency - Trading whilst insolvent
If your company continues trading despite you knowing that it is insolvent and unable to meet its liabilities and obligations, leading to a further loss to creditors, it is considered to be trading whilst insolvent and you may be held liable for the increase in liabilities. By seeking advice early, we can help you understand your solvent position and you can protect yourself early, ensuring that you are acting in your creditors’ best interest.
What happens to personal guarantees in insolvency - Bounce Back Loan (BBL) misuse
You can be held personally liable for misusing a BBL. This can involve obtaining loans through false information, using funds for unauthorised purposes, or engaging in activities that don’t align with the loan’s terms. If you’re unsure about if you have misused a BBL, or have concerns about personal liability, we can provide free advice including how this can be addressed.
More on Bounce Back Loan misuse
How can the types of liquidation affect your personal credit rating?
Company liquidation is the formal process of closing a limited company. During the process the company’s assets are sold, business operations come to a halt and once finished the company is removed from the register at Companies House and ceases to exist. The liquidation of a company is final and irreversible.
- Creditors Voluntary Liquidation (CVL)
This is a voluntary procedure for insolvent companies, initiated you as director which can only be carried out by a licensed insolvency practitioner. The process will formally wind-up and close your limited company, writing off your company’s unsecured debts. After the closure of your company, barring there has been no evidence, or reason for personal liability, your personal finances, or credit rating won’t be affected, and you will be free to start a new company. - Members Voluntary Liquidation (MVL)
This is a voluntary procedure used to close solvent companies. It can only be carried out by a licensed insolvency practitioner and will formally close your limited company. Typically, the process has no bearing on you personally and won’t affect your personal credit rating. The procedure will extract your company’s maximum value through the procedures various tax benefits. - Compulsory Liquidation
This is a court-ordered process which is imposed on your company. Your creditors can issue a winding-up petition if your company owes them £750 or more, with the petition then taken to the courts. The process is carried out by the official receiver. Similar to a CVL, if there is no evidence of any wrongdoing, you won’t be personally liable for any company debt and will be free to start a new company.
What can affect your personal credit rating?
Your credit rating is linked to your credit file, which logs your personal borrowing and repayment activities. You keep your credit rating healthy by repaying your debts on time and not taking out more lines of credit than you can afford. Taking out multiple lines of credit and falling behind on payments can damage your credit rating, making it harder to secure loans and mortgages.
How our services can help you
If your company is having financial difficulty, and you are considering the liquidation of your company, but you’re concerned about your personal credit rating. We can help guide you through the processes available and offer you the best advice on how you could be impacted personally.
- Close your company down via a Creditors Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets, and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed, your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director, to move on.
- Close your company down and start again via a pre-pack liquidation
A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
How to get in touch with us: The next steps for engagement
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form, or online chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation. - Initial assessment
During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or whether alternative solutions better suit your company’s problems - Formally engage with Wilson Field
If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us.
In summary
In most circumstances, the liquidation of your company won’t affect your personal finances or your personal credit rating. Limited liability protects you as an individual. However, in some circumstances, if you are held personally liable for company debt, it can affect your credit rating. We can give you free, confidential advice on how your personal finances could be affected by the liquidation of your company.
Case Studies
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.
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.”
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.”
Free Consultation
Request a free confidential telephone consultation from 9am - 8pm, 7 days a week.
