If you are the owner of a limited company that has recently been struggling financially, you may want to know what will happen if it goes bust.
What will the repercussions be? Will you lose your home? We will cover all of this and more for you in this guide.
- 1 What does it mean to go bust?
- 1.1 Is my house at risk if my business goes bust?
- 1.2 Risks to your house when your company goes bust
- 1.3 What next? Expert Advice is just A click away
What does it mean to go bust?
If a business venture goes bust it simply means that there is no longer enough cash in the company for it to survive. It will therefore enter a terminal insolvency process, such as administration or liquidation.
A business that has gone bust will owe money to creditors it can no longer afford to pay, meaning they will likely soon launch legal action against the company to recover any debt still owed to them.
Is my house at risk if my business goes bust?
Normally, you will not lose your house if your limited company goes bust. The same goes for your other personal belongings, as they should also be safe even under these circumstances. This is because just as the name suggests, the liability is limited. Therefore, all consequences remain within the business itself and do not pass over to you personally.
However, you should be aware that there are certain sets of circumstances that will make you vulnerable. We will discuss these instances with you now.
Risks to your house when your company goes bust
There are a few exceptions whereby directors of companies may be held personally liable for some debt, This could have a detrimental effect on directors in regards to losing their homes.
If you personally guarantee a company loan –
On the off chance that the business you own has a poor credit record, is small or not established enough, financial providers may request a personal guarantee before awarding you with a loan.
At the point when the opportunity arrives, if you can’t repay or if your limited company becomes bust, the creditors will come to you for reimbursement. You will be expected to take responsibility in this instance. If you cannot afford to make the required repayments, your home and some other personal possessions might be in danger should you be made bankrupt.
Offered a lender a charge over your house
When taking out a business loan, the lenders who give the advance might be concerned that you may not be capable to repay it if something goes wrong, so they could request a charge over your home. If your company goes bust, and subsequent creditor CTIONS, like calling on personal guarantees, implies some lenders will be left out of pocket.
In this case the moneylender might demand a charge on your property as additional security. This will imply that it will be paid before other creditors if the property is sold.
If you have an overdrawn director’s account
It is very normal for directors to have an overdrawn loan account. This is the point at which the director removes cash from the organisation for personal use, however it should be reimbursed sooner or later and accounted for as any other transaction would be.
The issue comes when the business loses everything, and the advance isn’t repaid. The outlet or manager for this situation will seek out the cash, as you are an indebted person of the company. Personal bankruptcy is a danger that could mean repossession of your home.
If you are found to be guilty of wrongful trading
As the licensed insolvency practitioner explores the conduct of the director(s), as a component of the indebtedness cycle, they might track down that you, as the owner have overlooked creditor interests and instead heaped on extra debt realising that it couldn’t be reimbursed (an example of wrongful trading). This is a significant break of the Insolvency Act and may well bring about you turn out to be by and by obligated for a few, or the entirety of the corporate debt. Such activities against directors are uncommon yet none the less they do occur.
What next? Expert Advice is just A click away
Thus, if you have gone about as a director with no personal guarantees, you haven’t unjustly exchanged and you can reimburse your overdrawn director’s account, then, at that point, you don’t have anything to stress over. Your home isn’t in danger. In case you are uncertain or might want any further exhortation, feel free to get in touch with one of our experts today.