What Happens to the Debts of a Dissolved Company

What Happens to Debts When a Limited Company Has Been Struck Off or Dissolved?

As the director of a limited company, you enjoy the safeguard of limited liability. This means that the company’s finances are distinct from your personal financial matters. The company’s debts are its own.

When a limited company is dissolved, it stops existing as a legal entity. Therefore, in most cases, any debt the company had when it was struck off also ends with the company. 

Hence, creditors or debt collectors cannot pursue individual company directors for repayment. Likewise, company directors are not expected to cover the deficit left by their dissolved insolvent company.

Nevertheless, there are exceptions to this rule. If the director of a dissolved limited company gave personal guarantees for any of the company’s borrowing, they would be personally responsible for repaying the outstanding money.

Any personal guarantee will become active when the company enters liquidation or is struck off or dissolved. This means the obligation to repay the remaining borrowing will promptly transfer to the individual who signed the guarantee. Dissolving the company does not release the director from this obligation.

 

What Can Creditors Do for Debts After Company Dissolution?

Depending on the scale and nature of the debts left unresolved after dissolving the company, creditors may seek to have your company reinstated to the register. This action would revive the company, enabling creditors to pursue outstanding debts.

If a company is dissolved, creditors might suspect that there were assets in the company capable of paying off the debt and may seek to recover them. However, since the limited company has already been dissolved, it must first be restored to the register of companies.

This process can be both expensive and time-consuming. Nonetheless, if a creditor aims to recover a substantial amount of money and has grounds to believe that the dissolved company possessed considerable assets before dissolution, they may indeed pursue this course of action.

Instances like these highlight why opting for a formal liquidation procedure can often be much more advantageous than choosing to dissolve a company.

If an outstanding creditor persists in harassing you personally, you can direct them to the insolvency practitioner who managed your case. They can demonstrate that the company was shut down, its assets liquidated, and proceeds distributed correctly under the Insolvency Act 1986.

When a company undergoes formal liquidation by an insolvency practitioner, the likelihood of reinstatement at a later date diminishes significantly.

 

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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.