Will placing a Company into Liquidation affect the Director’s personal credit rating?

This is a very common question we are asked almost daily.

A Company is a separate legal entity that has its own credit status and the Directors and Shareholders are also separate legal entities.  Therefore, any impact on the credit status of the Limited Company will not directly affect the personal credit rating of the Directors or Shareholders and this includes if the Company is placed into a formal insolvency process such as Liquidation, Administration or a Company Voluntary Arrangement.

However, Directors and Shareholders need to ensure that they seek the correct professional advice as there are issues which may impact on them personally even if it does not directly affect their credit rating when placing a Company into a formal insolvency process.  These issues include but are not limited to:

• Personal guarantees that may have been given to banks or suppliers
• Illegal dividends where dividends have been drawn over and above the Company’s distributable reserves. As these are classed as illegal dividends then these are repayable
• Overdrawn Director’s loan accounts – where the Director has loan monies from the Company instead of taking a salary or dividends
• Excessive remuneration – if an insolvency practitioner considers that the Directors have been drawing a salary that is above what is considered reasonable
• Claims that an Insolvency Practitioner may have against the Directors such as Preferences, Transactions at an Undervalue, Wrongful Trading and Fraudulent Trading.

It is imperative that when Directors consider placing the Company into a formal insolvency process that they fully understand the personal risks for them and what they may be liable for personally, if anything.  In many cases Directors have done the right thing while trading their Company and acted in the best interests of the Company, its employees and the creditors and they will not become liable for the claims mentioned above.

Our best advice at Cowgills is not to rush into the decision to place your Company into a formal insolvency procedure without firstly understanding the risks on the Directors personally.  If you wish to have a meeting free of charge and without obligation then please feel free to contact us, email enquiries@cowgills.co.uk.