Can business debt make you lose your home?
In most circumstances, no, you will not lose your home due to business debt as the director of a limited company. Directors benefit from limited liability protection, separating your company’s finances from your own, and preventing legal action against the company from affecting you, personally.
However, there are exceptions. You could be at risk if you’ve signed a personal guarantee or granted security on your house. Additionally, if you operate as a sole trader, there’s no legal distinction between business and personal finances. Consequently, your creditors can file legal action against you, personally, and your personal assets, including your home, could be at risk
How is personal liability different for company debt and sole trader debt?
Personal liability and responsibility for repaying your business’ debts vary depending on your business’ legal framework.
- Limited companies
Limited companies are a separate legal entity from their directors and have limited liability protection, shielding those directors from personal liability. The debts belong to the company and won’t affect you personally in most circumstances. - Sole traders
Sole traders don’t have limited liability protection as they and their business are the same legal entity. This means there is no separation between your finances and the business’, and your personal assets could be at risk.
When can a limited company director be held personally liable for company debt?
If you run a limited company, business debts will usually not affect you personally due to the company’s limited liability protection. However, in certain circumstances, you could become personally liable for debts incurred.
These circumstances can include, but are not limited to:
- Personal guarantees
You may have signed personal guarantees to secure funding for the business. - Overdrawn Director’s Loan Account
Taking money out of the company outside of dividends or salary. - Trading whilst insolvent
Continuing to trade while knowing that the company is insolvent. - Illegal dividends
Taking dividends when the business wasn’t generating sufficient profits to justify them. - Bounce Back Loan misuse
Using a Bounce Back Loan for reasons outside those permitted. - Operating as a sole trader
If you operate as a sole trader, there is no legal separation between you and your business, which means there is no limit to your liability, and creditors can pursue you personally for incurred business debts.
Is there help available if I’m personally liable for business debts?
There are formal and informal options if your business debts are affecting you personally. The solutions available can include, but are not limited to:
- Formal options
These are legally binding processes designed to help you manage your debt. Creditors in agreements with you must follow the terms and can’t take further action against you.- Individual Voluntary Arrangement (IVA)
- Personal bankruptcy
- Debt Relief Order (DRO)
- Administration Order
- Informal options
These are more flexible agreements, which allow you to manage your debts without a legally binding agreement.- Debt Management Plan (DMP)
- Negotiating with your creditors
- Debt consolidation
- Token payment plan
If you are worried about your company’s financial position and the possibility of company debt affecting your personal finances, it’s important to get advice as soon as possible. We can offer you free, confidential advice on the best debt solutions for your company or the most appropriate for you as an individual.
How we can help you deal with your limited company’s business debts
As licensed insolvency practitioners, we can offer free, confidential advice and can carry out the following formal insolvency procedures to help you and your company. Get in touch if you’re struggling to repay your business debts. We can assess your situation and advise which recovery or closure option would be the most suitable.
- Repay your company debts in a payment plan via a Company Voluntary Arrangement (CVA)
A CVA is a payment plan between a company and its creditors that allows you to restructure your company’s unsecured debts, while continuing to trade, by making affordable monthly payments over a fixed period. We start by assessing your company’s financial position, determining a realistic repayment amount. These terms are then proposed to your creditors and if approved, your company enters the repayment plan. When in place, all interest and charges are dropped and creditors in the arrangement cannot take further legal action. The process lasts for up to 5 years and on successful completion, any remaining unsecured debt in the arrangement is written off.
- Restructure your company through administration
Administration is an insolvency procedure for companies. Entering the procedure, your company will be in a temporary state of protection by a moratorium that halts creditor action, including legal proceedings, giving your company the breathing space to continue trading. We will act as administrator and our primary purpose is to rescue your company as a going concern, attempting to restructure and turn it into a leaner, more profitable organisation. If rescuing the company isn’t a viable option we will also look at the most appropriate exit strategies from administration, whether that be a potential sale of the business, assets, the whole company, or transitioning to an alternative insolvency procedure.
- 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
If your business operates through a limited company, you have limited liability protection, separating the company’s assets and finances from your personal finances. This means that in most circumstances, you will not lose your home if the company has unaffordable debts. If, however, you have any personal guarantees or if you work as a sole trader, you could be at risk of losing your home. Contact us if you’re worried about your business’s financial position. We can offer free, impartial, confidential advice with no obligation and advise you on the solutions available.
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.”
Designer Recliners Limited
Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)
A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.
Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.
Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.
Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.
“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”
The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.
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.”
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