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In most circumstances, directors and shareholders aren’t liable for a limited company’s debts. But there are some situations when you can be held personably accountable for your firm’s debt.
If your business is struggling financially, you might have thought about closing the business and forgetting about any debt worries. Unfortunately, however, there are some types of debts that you can’t escape by liquidating your company.
In this blog post, we’ll detail four situations where you might still be liable for your limited company’s debts.
If you have given a Personal Guarantee
When a limited company applies for a loan or another type of credit, the lender may ask the director for a personal guarantee.
If the company cannot pay the debt, then the director acts as a guarantor and can be held personally liable for the amount owed.
Personal guarantees can be unsecured or secured against property or land. If the personal guarantee is secured, the lender can repossess your property or land if you’re unable to pay.
Banks, suppliers and landlords often request personal guarantees. And they are enforceable. If your company is facing insolvency, you should reach out to the creditor and agree on a payment schedule.
If you have committed any director’s offences
If your company enters formal insolvency proceedings and you are found guilty of a director’s offence, you can be held personally liable for the company’s debts.
Director’s offences include:
- Wrongful trading
- Fraudulent trading
- Recording incorrect information
- Making false statements about the company
- Breaking laws and regulations
You owe Pay as you Earn Income Tax (PAYE)
When a company formally closes, you will not be personally liable for any PAYE income tax that your company owes. However, HMRC can recover unpaid income tax from employees in exceptional circumstances.
As a director of a company, you may also be an employee. You may have to repay some unpaid income tax if HMRC decides to recover it from employees.
Your Director’s Loan Account is in debt
If a limited company enters formal insolvency proceedings and the director’s loan account is in debt (meaning that you owe the company money), then will be asked to repay the amount owed.
Rules around director’s loan accounts can be complicated, so it’s advisable you take professional guidance when possible.
For more information about personal liability on company debts, or to seek advice on a company insolvency, speak to a member of the Umbrella.UK Insolvency team today. Call: 0800 611 8888.