When might your personal assets be at risk?

Company directors often worry about the possibility of losing their homes if their business faces failure. In most instances, the answer is no, but there are rare circumstances when your personal assets might be vulnerable. It’s crucial to grasp the specific situations in which this risk exists.


What happens to company debts in liquidation?

When your business faces insurmountable debt and lacks a viable recovery outlook, you have the option to voluntarily shut it down through a process known as Creditors’ Voluntary Liquidation (CVL). Alternatively, creditors can compel the company into closure through Compulsory Liquidation. In both scenarios, a liquidator is appointed to sell the business assets, and the proceeds are distributed among creditors, with any remaining debts being discharged.

A strict hierarchy dictates the order in which creditors are paid during liquidation. Unsecured creditors, such as HMRC, suppliers, landlords, and customers, typically receive minimal amounts or none of the owed money as they rank at the bottom of the list. As the business and director’s finances are distinct, creditors cannot pursue directors personally for these debts, leading to their write-off.

Nevertheless, there are instances where you may assume personal liability for some or all of the company’s debts. If faced with such a situation and unable to settle your obligations, your home could be at risk.


When is my home at risk in company liquidation?

I. You sign a personal guarantee

As a company director, securing a finance agreement might require you to offer a personal guarantee. Should the company face failure, and there are insufficient funds to repay the lender, you may be personally pursued for the outstanding amount. If the personal guarantee is tied to your home, its value could be at stake if payment becomes unfeasible. Alternatively, bankruptcy may be initiated, and your assets, including your home, could be liquidated to settle the debt.

II. You have an overdrawn director’s loan account

An overdrawn director’s loan account allows directors to legitimately borrow money from the business. However, trouble arises if the company enters insolvent liquidation, and the loan remains unpaid. In such cases, the liquidator may demand repayment for the benefit of creditors. Failure to comply could lead to legal action, potential personal bankruptcy, and even the repossession of your home.

III. You don’t pay your company’s National Insurance Contributions

Neglecting National Insurance Contributions (NICs) on your staff’s earnings when the company is insolvent may prompt HMRC to issue a Personal Liability Notice. This makes you personally responsible for the unpaid tax, putting your home at risk if you cannot meet the obligation.

IV. You’re guilty of wrongful trading

Wrongful trading arises when you continue trading despite knowing the company is insolvent, worsening creditors’ positions. As a company director, prioritising creditors’ interests is a legal obligation when insolvent. Failure to do so may result in personal liability issues, jeopardising your home.

V. You engage in fraudulent trading

Partaking in fraudulent trading as a company director exposes you to personal liability for company debts, potentially impacting your home. 

Fraudulent trading occurs when business activities are conducted with the intent to defraud creditors, including: 

  • Utilising company funds for personal benefit or the benefit of connected parties.
  • Concealing company assets or selling them to connected parties at a value lower than their actual worth.
  • Accepting customer orders without any intention of fulfilling them.


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Need advice?

If the prospect of company liquidation concerns you regarding your home’s security, contact us today for a complimentary consultation or schedule a face-to-face meeting at your nearest office. Our licensed insolvency practitioners can assist you in prioritising creditor interests and navigating options related to personal guarantees and overdrawn director’s loan accounts.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.