If I close a limited company will I be personally liable for its debt?
In most situations as company director, no, you will not be personally liable for company debt when closing your company. A limited company is classed as a separate legal entity to the associated directors and shareholders, protecting you via limited liability.
To close your limited company with outstanding debt, it needs to enter into a formal liquidation procedure. An informal process like dissolution is for solvent companies without debt and should not be used by insolvent companies as an alternative to formal liquidation.
- Creditors Voluntary Liquidation (CVL)
This is a voluntary procedure 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. - 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. The process is carried out by the official receiver, who is appointed by the courts.
What is limited liability?
Limited liability means that as a company director, you are not personally responsible 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 cannot be held personally liable or responsible for the limited company’s debts unless they have signed personal guarantees.
When can a director be held personally liable for company debts?
Although a limited company’s liabilities are its own and don’t attach to the director, there are certain circumstances where a director may be held personally liable for those debts. Examples of these can be, but are not limited to:
- Personal Guarantees (PG)
A Personal Guarantee is a legal commitment made by you to a third party, such as a lender, supplier, or landlord, securing a form of funding for your company by using personal assets and finances as security. If your company fails to repay its debt, your guarantee will become enforceable by the third party. If you’re concerned about personal guarantee liability, in some cases lenders may be open to negotiation.
More on 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 for creditors, it is considered trading whilst insolvent. This can result in personal liability for the losses incurred by creditors. 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.
More on trading whilst insolvent - Overdrawn Director’s Loan Account (DLA)
If you have borrowed money from the company which has not been repaid, and as a result, you have an indebted (overdrawn) Director’s Loan Account when your company enters liquidation, you may be required to repay the outstanding balance using your own personal funds. 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 - 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
If your company is facing financial difficulty and you’re worried about the implications it could have on you personally, we can provide free, confidential advice on the options available to your company and for you as an individual.
Can I lose my home due to company debt?
In most cases, limited liability protects your home when your company enters liquidation. However, exceptions apply if you have personal guarantees or other personal liabilities.
Is there help available if I’m personally liable for company debts?
Yes, there are both formal and informal options for you to consider when dealing with either secured or personal debt unsecured debts. 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.- 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 not only the best options for your company, but also the most appropriate debt solutions for you as an individual.
How we can help you close and liquidate your company with debts
If your company has debt and you are worried about the potential implications on your personal finances, our initial advisers can offer a comprehensive explanation of the different options available to you. Our experienced consultants can offer a free, no-obligation consultation, where we can discuss personal guarantees you may have signed, and what implications an overdrawn directors loan account could have on your situation.
- 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.
Find out more about Creditors Voluntary Liquidation - 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.
Find out more about Pre-pack Liquidation
How to get in touch with us: The next steps
- Speak with our initial advisers
Contact our team via phone, filling out our 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
A limited company offers limited liability protection, meaning company debts are separate from the director’s personal finances. Usually, as a director, you will not be held personally liable for your company’s debts, however, there are certain circumstances when you can be held personally liable.
If you are concerned about your company’s financial position and any potential personal liability connected, speak to us for free, confidential advice on your situation and we can provide you with 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.”
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.
💬 Live Chat - Available
✅ Free confidential help & advice
If you or your company is in financial difficulty, I may be able to help you. Our phone lines operate 9am until 9pm - 7 days a week.
Chat With MeFor immediate help & free advice, please freephone:
Free Consultation
Request a free confidential telephone consultation from 9am - 8pm, 7 days a week.
