Will company debts affect my personal credit score?

If you run a limited company, your personal finances and credit score won’t be influenced by your company’s financial track record because liability is limited to the business. However, if you’re a sole trader, your personal and business finances are connected, so both can be affected.


Can business troubles impact my personal finances and credit rating? 

Business troubles can affect your personal finances and credit rating, especially if you have personal financial ties to your business or if you’ve personally guaranteed any business debts. 

Here’s how business troubles can impact your personal finances and credit rating:


1. Personal Guarantees 

If you’ve provided personal guarantees for anything acquired for the company, like a business loan or property lease, and the business can’t meet the agreed payment terms, as a director, you’ll be personally liable.

In case you fail to meet the payment schedule, the creditor—be it the landlord or the bank—will seek payment from you personally for the debt. It’s essential to review all your agreements to understand your specific situation.


2. Fraudulent Trading

A company is considered insolvent when it cannot pay its debts when they’re due or when its liabilities exceed its assets. If you’re aware of your company’s insolvency and you keep trading, accumulating more debt for the company, as a director, you can be held personally responsible for that debt. 

Under such circumstances, if the director accumulates additional debt while being aware that the company has no prospect of recovering or repaying that debt, it could be considered fraudulent trading.

If a company director is proven guilty of fraudulent trading, despite acting through the company, they could become personally responsible for any losses incurred and may be required to pay damages as well. This applies whether the business can meet its debts or not.


3. Misfeasance Claim 

Misfeasance refers to the wrongful or improper performance of a lawful act. Directors may become personally liable if a misfeasance claim is brought against the company, where they have knowingly acted inappropriately, resulting in harm to another party.


4. Overdrawn Directors’ Loan Account

When a company goes into liquidation with an overdrawn directors’ loan account, the directors become personally responsible for repaying that loan. The insolvency practitioner overseeing the liquidation is obliged to act in the creditors’ interests and can demand repayment of the loan. 

They have the authority to take legal action against directors to enforce payment, potentially leading to bankruptcy if directors are unable to comply.

Note: Ensure you seek professional advice from an accountant or licensed insolvency practitioner if you’re worried about your company’s financial position.


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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.