If your company has debts that it can’t repay, it’s important that you address the problem as soon as you become aware of it. Acting quickly reduces the chance of creditors taking further action and puts you in a better position to achieve the best possible outcome for the company, potentially saving it from collapse.
Should I try to repay what I can afford?
While it may be good intentioned to repay what you can afford or the creditor with the largest outstanding amount, as soon as you’re aware that your company is insolvent, it’s essential that you don’t repay one creditor before another. Doing so can lead to accusations of preferential treatment, which can worsen the situation.
Can my company’s creditors force me to repay?
While creditors can’t force you to repay, they can take action to recover what your company owes them. This recovery action can start as repayment reminders delivered to your company by phone, mail, or email. If you ignore these, creditors can issue County Court Judgments (CCJs) and Statutory Demands. These can damage your company’s credit rating if not addressed within the specified time and can also result in visits from debt collectors and even bailiffs.
Continuing to ignore your creditors can even result in them petitioning to close the company. They can do this if they’re owed more than £750 by issuing a winding-up petition. If approved by the courts, the company will be forced into compulsory liquidation if you can’t challenge the petition, effectively ending the company.
Are you personally liable for your company’s debts?
If your business is incorporated in a limited company, it will benefit from limited liability protection, which separates your company’s finances from your personal ones. As such, the company’s debts won’t affect you personally if you’ve fulfilled your duties as director and acted in the best interests of the company and its creditors.
While limited liability protection covers most scenarios, you could be held personally liable for some or all of the company’s debts. These circumstances include:
- The company has traded whilst insolvent or engaged in wrongful or fraudulent trading.
- You signed personal guarantees during your time as director.
- You have an overdrawn Director’s Loan Account.
- Your company has misused a COVID Bounce Back Loan.
Is there help available if your company can’t repay its debts?
Whatever your company’s situation, burying your head in the sand and hoping that the problem will go away will only worsen it. Instead, you should contact a licensed insolvency practitioner (IP). These experienced and regulated professionals can provide you free, impartial, confidential advice on what would be the best course of action for your company’s situation and, potentially, a free, no obligation quote.
Depending on your situation, they may advise your company enters one of the following insolvency procedures:
- Company Voluntary Arrangement (CVA) – repaying what your company can afford.
If the company’s core business would be viable if not for the creditor pressure and level of debt, it might be possible to repay a portion of its unsecured debts at a tailored, affordable rate. A CVA allows the company to continue trading for the duration, maintaining its profile and potentially its reputation with customers. A CVA usually lasts around five years, and once it concludes, any remaining unsecured debt is written off. - Administration – restructuring the company back to a profitable state.
If the company has a viable business model, but the problems are deeper-rooted and repayment alone won’t solve the issues, then administration might be a better option. This process involves a licensed IP acting as administrator and overseeing the company’s operations while trying to return it to a profitable state. Administration is a temporary measure and is often followed by another insolvency process. - Creditors Voluntary Liquidation (CVL) – voluntarily closing the company.
Liquidating the company through a voluntary CVL may be your best option if the debts and creditor pressure are of such a level that there is little chance of recovery. Doing so can draw a line under the debts, which allows you as the director to move on, and potentially gives creditors a chance of a better return.
Summary
If your company is struggling to repay its debts, it’s essential that you seek out professional help as soon as possible. You’re unlikely to be held personally liable for the company’s debts if you’ve fulfilled your duties as director, apart from in specific circumstances. While your creditors can remind your company to repay what it owes them, you should avoid paying one creditor in preference over another. Speak to a licensed and regulated insolvency practitioner who can assess your company’s situation and provide advice tailored to its situation.