Personal Liability and Busines Debts
A question that many will ask as their business begins to fail is…
“Am I Personally Liable for my Business Debts?”
Many people in business will operate as an individual, Sole Trader or Partnership. If this is your chosen trading style. It is likely that any borrowings from Lenders, will have been issued either in your personal name or that of the Partnership. That being the case, you will not benefit from limited liability status. Subsequently, you are liable to be pursued for the full amount of monies borrowed.
Where a secured business facility has been issued to an individual(s). Partnership debt falls into difficulty, the subject Lender will work through the sale of any security held and seek to reduce the balance owing.
However, once this has been completed, the individual(s) are fully exposed. The individual(s) can be pursued for the crystallised shortfall, up to and including Bankruptcy. In which case, personal assets can be at risk.
LIMITED COMPANIES AND PERSONAL GUARANTEES
It is important that anyone in this position prepare themselves to maximise protection. Home and other assets of importance could be materially exposed.
If you operate as a Limited Company, then it is likely that any business debt will be taken out in the Company name, i.e. an entirely separate entity from the individuals operating the business
In the event that a Personal Guarantee was signed, for a business loan or property lease, and the Company is unable to meet its obligations. Under the terms of the agreement, the Guarantor will be held personally responsible, if the payment schedule/terms and conditions of the agreement aren’t met.
The Lender, whether a Bank, Landlord or other, will pursue you personally for the debt and will take whatever action required to recover the full amount due under the Personal Guarantee.
OVERDRAWN DIRECTOR’S LOAN ACCOUNT WHEN A COMPANY ENTERS LIQUIDATION
If there is an overdrawn Directors’ Loan Account when a Company goes into liquidation, the Directors(s) will be held personally liable. In this case, an Insolvency Practitioner(IP) is appointed. The IP will demand and pursue repayment on behalf of the Creditors.
The IP is fully entitled to take legal action against the Director(s). Which could also lead to Bankruptcy, if repayment cannot be facilitated.
Having an overdrawn Director’s Loan Account in a liquidation situation can also lead to personal Revenue liabilities and investigation, if over a certain level.
Our expert Corporate Debt Strategists team can provide impartial and tailored advice to suit your needs.
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