When your company is struggling financially, you might have lots of different thoughts and questions going through your head. In this blog, we’re answering the question: If my limited company goes bust, will I lose my house?
How do I know if my company is struggling financially?
It’s a good idea to use accounting software and keep on top of your company’s finances. You’ll also need to be aware of any director’s loan accounts that you have.
Using a directors’ loan account is a common practice, and most of the time, it works well. Directors’ loan accounts record money sent and taken by the directors to the company. If the account is in debit, you should have no issues, but the best practice is to keep the account at zero.
Issues may arise if your account becomes in debt. This means that the director owes the company money. If the company enters a liquidation procedure, the director will need to find a way to pay this money back. Find out more about overdrawn director’s loans.
When a company is struggling financially, it is said to be ‘insolvent’. An insolvent company is usually unable to pay its debts when they fall due, and/or its liabilities may be worth more than its assets. If you notice these issues arising, you should follow the advice below.
What should I do if my company is struggling financially?
If your company is struggling financially, it’s important that you seek advice early. You should speak to a few licensed insolvency practitioners who can advise you on the best course of action for your business.
Make sure that any insolvency practitioners have checked all of your company’s details, for example, whether you have an overdrawn loan account.
By seeking advice early, you will gain access to the most options for your insolvent company. For example, you will be able to choose from a range of proceedings rather than being forced into compulsory liquidation.
A creditor’s voluntary liquidation is a popular option due to the amount of control that directors maintain. Directors are free to choose their own practitioners and will have more control over the time frame. This type of liquidation also reflects positively on the director as they have made the decision to seek advice early to benefit the company and its creditors.
If my limited company goes bust, will I lose my house?
The thought of losing your home can be extremely stressful, especially when you have worked hard on your business and are now suffering with financial difficulties.
In most cases, you should face no issues with your home in liquidation. However, there are some instances where you may face issues with personal assets. We’ll let you know more about these later in the blog.
A limited company offers directors more protection as it is viewed as a separate legal entity. This means that the director should not typically be held liable for company debts. In contrast, sole traders do not have this limited liability and, therefore, are responsible for their company’s debts.
If you are a director who has acted responsibly and has no risk of further issues, then you should face no threat of losing your home or other personal assets. If you are worried, it’s best to speak to a licensed insolvency practitioner. Make sure that you are honest with them from the beginning, as this will help to support your case.
When might I be at risk of losing my house?
As we said, most directors will face no issues regarding personal liability when they come to liquidate their company. However, some directors may face accusations of wrongdoing and, therefore, risk personal liability. Here are some of the situations that may lead to a risk of losing your home when your company goes bust.
Signed a personal guarantee
A personal guarantee is a contract between a limited company director and someone else. It essentially means that if the company cannot afford to pay the money owed back, then the director will step in and pay back the money. Personal guarantees always stand, and it’s unlikely that a company or person will cancel the guarantee and request nothing back.
Directors may take out loans against specific personal assets, such as a house or car. If a director is unable to pay this money, they risk losing these personal assets. Directors should also be wary of entering company liquidation and paying personal guarantees, as these may be labelled as preference payments. If your company owes money, you must be honest about it.
Overdrawn director’s loan account
We’ve already mentioned the risks associated with an overdrawn loan account. If your account is in credit during liquidation, you will need to pay the money back. This means that you may end up having to sell personal assets and even potentially facing personal bankruptcy if you cannot generate the money.
Wrongful or fraudulent trading
When a limited company enters an insolvency procedure, all trading must stop. Companies that continue to trade despite being insolvent will risk accusations of wrongful trading. If your company continues to increase its debts, then you may find yourself being personally liable for the company’s debt.
Part of the insolvency practitioner’s role in an insolvency procedure is to assess the director’s conduct under the Insolvency Act. If the insolvency practitioner finds evidence of fraudulent trading, the limited company director will be in trouble. Evidence may include actions such as selling the company’s assets at a different price to their market value and more.
Bounce-back loan fraud is another example of fraudulent trading that many company directors are having to face the consequences of. Bounce-back loan fraud can include borrowing too much money, taking multiple loans, using the money for personal benefit rather than the economic benefit of the company, and more.
Personal liability notice
Another example of when you may be at risk of losing your home is if you have been issued a personal liability notice. This is issued by HMRC regarding your National Insurance contributions. Find out more about HMRC arrears.
If you are found to have committed any of these elements of wrongdoing, then you may face legal action. These are examples of you not acting with your creditor interests as a priority.
We hope this blog has been helpful and answered the question: if my limited company goes bust, will I lose my house? We’re here to support you as the company director. If you need any support with your company and the liquidation process, please don’t hesitate to contact our friendly team. We’re here to give you professional, confidential advice regarding insolvent liquidation.
I'm Chris Worden, Managing Director at Director First. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice.