For many people Bankruptcy is an option for dealing with personal debt. However if you are a company director or a sole trader there are significant implications to be aware of.
- When is Bankruptcy an option for a Company Director?
- Can a Sole Trader go Bankrupt?
- How does Bankruptcy affect company employees?
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Can a Company Director go Bankrupt?
Bankruptcy causes significant problems if you are a company director. Critically once Bankrupt you are not allowed continue in your role as a director. In addition you are not allowed to be involved in the management of a company. These restrictions remain in force until you are discharged.
It is not an option to simply resign as a director and then to keep on running your company. This activity is not allowed and could lead to you being disqualified.
For this reason bankruptcy is not an option if you need to continue to run a company. This may well be the case if you are an owner director and the company is your only source of income. In these circumstances it would be better to use an Individual Voluntary Arrangement.
Having said that if you go Bankrupt your company does not necessarily have to close. You have the option of resigning and then appointing someone else as the director. Of course they also have to take over responsibility for managing the company. However you can work for the business as an employee and be appointed as a director again after your discharge.
Can a Sole Trader go Bankrupt?
You can be self employed if you are bankrupt. As a sole trader you are self employed not a company director. As such Bankruptcy is an option for you to consider. You will also be able to keep any tools you need to run your business including a vehicle. Having said that it can still cause you problems.
One of the issues is that your business bank account will normally be closed. It will then be difficult to open a new trading account. An option to overcome this is to open a new personal bank account. This can then be used for your business transactions.
An additional problem is that your credit rating will be negatively affected. You will lose any overdraft and credit card facilities. You will also find it difficult to get trade accounts with suppliers. This can make managing your business more difficult if you have been used to using these facilities.
You are only allowed to trade under the name in which you declared yourself bankrupt. As such you can no longer use just your trading name.
The effect of Bankruptcy on Company Employees
If you are company employee you are not restricted from going bankrupt. This is the case even if you have the job title of Manager or Director. As long as you are not a legally registered director and are not involved in the managing the direction of the company bankruptcy is an option for you.
Bankruptcy is an option if you are able to resign your position as a director and take a standard position of employment within your company.
As an employee it is prudent to check your employment contract before going bankrupt. However for the vast majority of employed positions including the Civil Service, Armed Forces and Police there will be no issue.
Having said that there are a employed positions which you cannot continue to perform while bankrupt. These include working as a chartered accountant or solicitor and in specific financial services roles. You must always take expert advice before deciding to go bankrupt if you work in one of these roles.