Liquidating your company through creditors voluntary liquidation (CVL) can often lead to questions about how it may affect you. Many struggling directors worry unnecessarily about the effects it can have on them personally.
When it comes to starting over, directors are able to move on and start a new company, as long as they haven’t been found guilty of misconduct during the previous liquidation. As a separate entity to a limited company, directors are not liable for any of the company’s debt.
Am I personally liable if a company goes bust?
The limited company stands in its own right and is treated as a separate entity. As a director, you are an employee of the company and you are not personally liable for its debts, unless you have agreed personal guarantees.
This can change though depending on the actions of the director. If there have been cases of wrongful trading or if there is an outstanding directors loan account, they could be held personally liable. Wrongful trading would involve acts such as accepting deposits from clients knowing they couldn’t deliver the goods or services, which is also known as trading whilst insolvent.
If directors, shareholders or anyone else involved in the company have signed personal guarantees, they will be personally liable for whatever debts they guaranteed which are not repaid in the liquidation process. If you or anyone else involved in the company have personal guarantees it is always advisable to seek advice as quickly as possible.
It is common for banks to agree on a deal where the personally guaranteed debts are repaid over a period of time, though this will mean the director cooperating with the bank to limit its exposure.
Can I set up another limited company?
There is room for directors to set up another company after being liquidated, however, it can depend on the circumstances of the director. If the company has gone down the route of a pre-pack liquidation, then it’s unlikely a director would be banned as normally they are continuing their role within a new company. Under an act known as the Company Directors Disqualification Act 1986, it may be possible for a director to face disqualification proceedings for as many as fifteen years following the date of disqualification, which would preclude him or her from acting as a company director.
It is important to ensure that all annual returns, including VAT and tax returns, are completed and sent in. Other issues regarding compliance should also be dealt with accordingly. These vital procedures will help protect company directors as it shows they have acted responsibly.
In terms of starting a new limited company, directors are able to start fresh after a liquidation, as long as they have not previously been found guilty of misconduct. There are potential liabilities which can hit company directors after liquidation. If there are personal guarantees involved, directors will have to settle those debts themselves, regardless of the liquidation.
How we can help
If you think your business is in trouble and needs to be liquidated, we can give you a free consultation and help walk you through the best possible liquidation options. If you have any questions about the result of a liquidation and what happens after, get in touch today.