If my company goes into liquidation, can they make me bankrupt?

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To answer the question ‘if my company goes into liquidation, can they make me bankrupt?’, let us home in on four key words.

Liquidation

This article assumes that the context is an insolvent liquidation of a limited company incorporated in England & Wales, ‘Compulsory’ or ‘Voluntary’. Having said that, the principles will apply in other insolvency contexts.

Me

Secondly, we are assuming that ‘me’ means a director of the company in liquidation, either at the time of liquidation, or during the period prior to liquidation that is subject to investigation or enforcement action.

Bankrupt

Under Insolvency legislation and UK law, only a Court can make an Order to adjudge an individual bankrupt, (usually) as a result of a Petition presented to the court by a legitimate creditor who has the necessary rights to enforce against the individual. An individual is always entitled to defend his/her position via a bankruptcy hearing. So, it should never happen without your knowledge.

They

If someone can pursue you through the bankruptcy courts to recover a sum of money that is proven to be properly due, which will potentially result in a dramatic effect on your finances and personal status, it would be useful to know who ‘they’ might be. The short list below is not exhaustive, but serves to illustrate the areas of risk or concern to company directors.

‘They’ might include –

  • A bank or lending institution – to whom you have given a personal guarantee to meet a company liability if the company fails to do so, which usually is the case in insolvency situations.
  • A trade or supplier creditor – as above, where you have given a personal guarantee. It is also worth emphasising that frequently, when companies incorporate from a sole trader or partnership entity, the need to change the supplier account into the corporate name is overlooked – critically leaving the door open for an individual to be personally liable for the company debt!
  • The company liquidator. A liquidator has several angles via which a director might be personally pursued:
    • A straightforward debt due to the company because you have borrowed money on a director’s account;
    • The repayment of an illegal dividend paid to you as a shareholder but which is proven to be illegal under Companies Act legislation. This can back date several years;
    • Enforcement action under specific sections of the Insolvency Act 1986, for example, S.212 Director’s misfeasance or breach of any fiduciary duty; S.213 fraudulent trading; S.214 Wrongful trading.

Limited liability

What about the protection afforded to directors by ‘Limited company status’?

Yes this is real, but there are many ways in which you can lose this protection. The above lists various situations where what is often referred to as ‘the corporate veil’ can be ‘pierced’!

Talk to us

Beware that there may be trouble ahead. Our Business Recovery and Insolvency Team would be pleased to talk to directors regarding this subject to see how we can help.

This blog does not constitute specific professional advice.  You should seek independent qualified professional advice on any specific query you may have in connection with this topic.

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