Many UK directors wonder if liquidation wipes out all company debts. Chris Worden explains the reality, risks, and what directors must know before acting.
- Liquidation does not erase all debts
- Some debts can follow directors personally
- Timing and conduct are crucial
- Personal guarantees and overdrawn loan accounts are key risks
- Get advice before acting
What Is Liquidation?
Liquidation is a legal process to close an insolvent company, sell its assets, and pay creditors in a set order. It is not an escape from responsibility. The liquidator will review the director's conduct and the causes of insolvency.
Which Debts Die With the Company?
Most company debts are written off after liquidation and dissolution, including:
- Supplier debts (unless personally guaranteed)
- Trade creditors (unless personally guaranteed)
- Landlord arrears (unless personally guaranteed)
- Unsecured loans (including Bounce Back Loans and CBILS)
- HMRC debts (VAT, PAYE, corporation tax)
If the company has no assets, creditors may get nothing. But not all debts disappear.
Debts That Follow Directors Personally
Some debts can become personal liabilities:
- Personal guarantees: If you signed a PG, you remain liable even after liquidation.
- Overdrawn director's loan accounts: Money owed to the company by directors must be repaid.
- Poor conduct: Wrongful trading, preference payments, or misconduct can lead to personal liability.
- HMRC action: In serious cases, HMRC can issue personal liability notices.
Safe vs Dangerous Liquidation
Timing matters. Acting early and responsibly can protect you. Waiting until a winding up petition or borrowing more to survive increases risk. Ignoring advice or draining company funds before liquidation can make you personally liable.
Key Takeaways
- Liquidation does not erase all debts
- Personal guarantees and overdrawn loan accounts are key risks
- Director conduct is reviewed
- Act early and seek advice
- Chris Worden and Director First can help you understand your risks
FAQs
- Does liquidation wipe out all company debts?
- No, most company debts are written off, but personal guarantees and overdrawn director's loan accounts remain your responsibility.
- Can HMRC pursue me after liquidation?
- Yes, in cases of misconduct or deliberate avoidance, HMRC can issue personal liability notices to directors.
- What happens to my director's loan account in liquidation?
- If overdrawn, you must repay it. The liquidator will pursue repayment as it is an asset of the company.
- How can I avoid personal liability in liquidation?
- Act early, avoid taking on new personal guarantees, and seek professional advice before creditors take action.
- Who can help me understand my risks?
- Chris Worden and the team at Director First specialise in helping directors understand and manage their risks in liquidation.
Need tailored advice? Contact us today for confidential support from Chris Worden and the Director First team.
