How will liquidation affect me personally?
“A man in the pub said I cannot be a director of any other company if I liquidate my company.
Is this true?”
No it is not true! This just shows there is a lot of nonsense spoken about liquidations and acting properly. Many people are very worried about liquidating their company as they think it might affect them personally.
So how will it affect you?
Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly.
See Liquidation FAQs page for more questions and answers on this subject, but remember the following:
Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don’t act to put the company into liquidation.
If you fail to act and if eventually the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2 years. This is known as a conduct report on each director.
Did you know that if the OR finds that the directors have knowingly traded whilst insolvent and they failed to act, took credit without reasonable prospect of repaying the debts, failed to submit accounts or a number of other offences then it is possible you will face PERSONAL action?
Did you know that the directors can be made personally liable for the debts of the company?
This is known as the lifting of the veil of incorporation that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had “no reasonable prospect of surviving” the problems it faced.
Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of assets or even personal bankruptcy. In truth if the directors have acted naively they may not know they have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation.
It is the directors who initiate the process by nominating one of our insolvency practitioners. The directors may pay for the liquidation out of company funds, company assets or sometimes personal funds to ensure that voluntary liquidation goes ahead. It can be cheaper in the long run to pay for liquidation than face personal liability for the debts!
Of course the directors, if they have acted wrongfully may still face negative conduct reports in voluntary liquidation. The rule is generally, the longer you leave it, the more risk of personal liability you may have.
If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company.
One great piece of FREE advice – always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other “compliance” issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.
This is clearly a general guide so, if you have any worries at all please just call us and we will talk you through the situation free and with expert guidance.