1. Understand the Difference – Corporate vs. Personal Debt

First things first—your company’s debts and your personal debts are not automatically linked. “If you’re trading as a limited company, there’s a clear separation between your business and your personal finances,” says Tom Fox, Head of Insolvency at Umbrella.UK Insolvency. This limited liability means that as long as you’ve acted properly as a director, your house, savings, and personal assets should be protected.

2. Avoid Personal Guarantees Wherever Possible

One of the quickest ways to blur the lines between personal and business assets is by signing personal guarantees for business loans, leases, or supplier contracts. “Lenders often ask for personal guarantees, especially for small and medium-sized businesses,” explains Tom. “But be very cautious. It means that if the business can’t pay, you are personally responsible for the debt.”

Wherever possible, try to negotiate with lenders to remove or reduce personal guarantees. If you’re already tied into one, seek professional advice on how to limit its impact.

3. Keep Your Finances Separate

It sounds basic but keeping your personal and business finances separate is crucial. Mixing them can make it harder to argue that personal assets are untouchable in insolvency situations. “Use separate bank accounts, and don’t dip into the business account for personal expenses or vice versa,” advises Tom.

Maintaining clear, distinct financial records helps if you ever need to demonstrate that your personal assets are not tied to your company’s liabilities.

4. Watch for ‘Wrongful Trading’

As a director, you have legal duties. One of the most important is to avoid wrongful trading. This occurs when a director continues trading when they know the company is insolvent, or it becomes clear the company can’t avoid insolvency. “If you keep the business going in this situation, you could become personally liable for company debts,” warns Tom.

To avoid this, get regular financial updates, and seek professional advice at the first sign of serious trouble. Closing the business early, rather than dragging it out, might seem painful—but it could protect you from bigger financial headaches down the line.

5. Directors’ Loan Accounts – Don’t Owe Your Own Business

If you’ve taken money out of the company that hasn’t been repaid, you could be personally liable for it during insolvency. “Directors sometimes treat the company’s funds like a piggy bank, taking out loans that aren’t formalised or fully repaid,” Tom says. “But in insolvency, these loans become repayable to the business.”

To avoid this, keep your directors’ loan account (DLA) in good standing. Pay back any money you’ve borrowed from the company to ensure you’re not left with a debt you weren’t expecting.

6. Think About Directors’ Insurance

One option to protect yourself from some personal liability is Directors and Officers (D&O) Insurance. This policy covers directors against claims for wrongful trading, breach of duty, or negligence. “It’s not a magic bullet,” warns Tom, “but it can provide a useful layer of protection if claims are made against you personally.”

7. Seek Professional Advice Early When Considering Protecting Personal Assets During Insolvency

The moment you suspect your business might be in trouble, reach out to an insolvency expert. “The earlier you act, the more options you’ll have,” says Tom. Many business owners wait too long, hoping things will turn around. But the sooner you get advice, the more likely you are to protect your personal assets.

8. Consider a CVA or Pre-Pack Administration

If you’re facing insolvency, you might be able to restructure through a Company Voluntary Arrangement (CVA) or Pre-Pack Administration. Both offer a way to continue trading while dealing with debts. “A CVA lets you negotiate with creditors to pay a portion of your debts over time, while Pre-Pack Administration involves selling the business assets to a new company,” explains Tom. “Either can help you avoid a total collapse.”

However, both processes require careful planning and expert help to ensure they’re done legally and ethically.

9. Don’t Panic – Plan

It’s easy to feel overwhelmed when facing insolvency, but panic is not a strategy. “Stay calm, get advice, and focus on what you can control,” Tom says. “Many directors successfully navigate insolvency without losing their personal assets. The key is preparation.”

Insolvency doesn’t have to spell the end for you or your business. By taking early steps to protect your personal assets, keeping your finances separate, and avoiding risky practices like wrongful trading, you can keep your personal world intact even if your business is struggling. And remember, the right advice at the right time can make all the difference.

10. Get Help With Protecting Personal Assets During Insolvency – We’re here for you

If your business is facing insolvency and you’re worried about protecting your personal assets, don’t go it alone. At Umbrella.UK Insolvency, we offer expert advice to help you navigate these tricky situations. “The sooner you seek advice, the better chance you have of protecting yourself and your business,” says Tom Fox.

For a free, no-obligation initial consultation about protecting personal assets during insolvency*, contact us today. We’re here to answer your questions and guide you through every step of the process. Reach out to us and let’s take the first step together.

*We don’t charge for an initial consultation, but it may lead to an insolvency solution where our pre-appointment costs are reimbursed as part of the fee structure that creditors approve.