Generally speaking, a director is not liable for company debt after a business is liquidated. However, there are some circumstances where you will have to pay the outstanding balances.
Included in this article:
- When do you become liable for personal guarantee debt?
- What happens to a directors loan account?
- Are you liable for bounce back loan debt?
Need help to liquidate your company? Call us (0800 180 8440) or complete the form below. The advice is free and confidential.
When do you become liable for personal guarantee debt?
I you have given a personal guarantee (PG) to pay any of your company’s debts, you are liable for the outstanding balance after the company is liquidated.
You may have given a personal guarantee to the company’s bank against the overdraft facility or company credit card
In addition, business loan providers such as Iwoca and Funding Circle will also have required you to give a PG if the company took a loan from them. You are also likely to have given a PG if you used invoice factoring.
Once your company is liquidated, your liability for any PGs you have signed will kick in.
You might be able to offer a settlement or agree a monthly payment plan with the lenders. If you can’t afford to pay the debt owed, you will need advice about personal debt solutions.
Struggling to get your head round all of this? We can help. Call us (0800 180 8440) or complete the form below. The advice is free and confidential.
What happens to a directors loan account?
A director’s loan account (DLA) is where either the company owes you money (the account is in credit) or you owe money to the business (the account is overdrawn).
After the company is liquidated, if the DLA is overdrawn, you are personally liable to repay what is owed to the liquidator.
You may not be aware that you have borrowed money from the company. You may not have taken a physical loan. However, the debt can also exist if you have paid yourself dividends when the company had no profit.
Had the company continued to trade, this would not have been an issue and the debt could have been repaid in subsequent years.
However, once the company is liquidated, the debt crystallises and you become personally liable for it. The liquidator will enforce repayment by taking legal action against you if necessary.
Most liquidators will consider a reasonable offer to settle an overdrawn directors loan account with a lump sum payment. They are also normally open to a payment plans such as an IVA.
Are you liable for bounce back debt?
Generally speaking, directors are not personally liable to repay a Covid bounce back loan (BBL) they took on behalf of the company.
These loans are backed by the Government. This means that the bank who lent the money is able to claim back any losses from HMRC if the company is liquidated and can’t pay.
However in some circumstances, the director will be held personally liable for a bounce back loan.
In particular this may be the case if the director is found to have used the loan money to benefit themselves rather than the business. For example, part (or all) of the loan was used by the director for personal and not business expenditure.
In these circumstances, the element of the loan that the director used themselves will have to be paid back personally. The bank that lent the money will normally enforce repayment rather than the liquidator.
Need help with your personal liability for company debts after liquidation? Call us (0800 180 8440) or complete the form below. The advice is free and confidential.