Director Bankruptcy: When Company Problems Become Personal
A company becomes insolvent. An individual becomes bankrupt. They are separate legal events.
A company’s failure does not automatically make its director bankrupt. Personal bankruptcy becomes relevant where the individual has debts they cannot pay. Those may include personal liabilities arising outside the company or obligations such as personal guarantees.
What this means for the director
Separate the balance sheets. Company: what does the company own and owe? Director: what do you own and owe personally?
Then identify the bridges between them: personal guarantees, overdrawn director’s loan accounts (DLAs), secured personal borrowing, possible personal liabilities, jointly owned assets. Do not assume the company’s deficit is your personal deficit.
What happens next
If bankruptcy occurs, a trustee deals with the bankruptcy estate. Valuable assets can be realised, and a home can potentially be affected where the bankrupt has an interest or equity. Income may also be relevant.
Automatic discharge usually occurs after 12 months, although it can be suspended in some circumstances. Discharge does not necessarily bring the administration of the bankruptcy estate to an end.
Issues to establish
Personal guarantees. Personal loans and cards. Mortgage and security. Property ownership and equity. Jointly owned assets. Savings and investments. Pension position. Income. Household expenditure. Director’s loan account exposure. Claims already made. Other personal debt solutions requiring professional consideration.
Personal-position checklist
- Company debt: do not automatically place it on the personal balance sheet.
- Personally guaranteed debt: identify separately.
- Personal debt: record separately.
- Joint assets and liabilities: establish ownership and obligations.
- Income and pensions: establish current treatment and obtain appropriate advice.
Questions directors usually ask
Will liquidation make me bankrupt?
No. They are separate processes.
Can bankruptcy affect my home?
Potentially, depending on ownership, equity and circumstances.
What about my pension?
Approved pension rights are generally excluded from the bankruptcy estate, although pension and income issues can be fact-specific and advice should be taken.
Related authority pages
General information disclaimer
General information only. Insolvency, tax and director-liability outcomes depend on individual circumstances. Nothing on this page constitutes legal, tax or insolvency advice. Where insolvency is suspected, advice from an appropriately qualified professional should be obtained promptly.
Establish your position
Do not turn the company’s balance sheet into your own in your head. Build both balance sheets. Identify the connections. Then assess the personal position.