Can A Company Liquidation Affect My Personal Credit Score Rating?

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When company directors are faced with putting their company into creditor’s voluntary liquidation (CVL) they are likely to have many concerns about how the process will affect them personally. They might be concerned about whether they will be able to direct another company in the future or whether or not the liquidation will impact their personal finances, specifically, if it will affect their personal credit score rating.

The good news is that as a general rule, company liquidation (regardless of whether that is a CVL or a members voluntary liquidation (MVL)) should not have an impact on your personal credit score rating. As a director of a Limited Liability Company, your personal finances are protected from the company’s failures so long as you have acted according to the Insolvency Act of 1986. If company directors have not acted responsibly and knowingly partaken in wrongful trading, for example, they will not be protected by the “veil of incorporation” imposed by the Insolvency Act and therefore may be held personally liable for the company’s debts.

There are also a few more exceptions to this rule which can lead to liquidation affecting your personal credit score rating. Factors that make company directors personally liable for company debts include, but are not limited to:

Personal Guarantees

In some cases, lenders or even trade suppliers will ask directors for a personal guarantee to be agreed in support of a loan or credit application. A personal guarantee demands that the director must pay back the debt in the event of company liquidation. Failure to make the payment can result in you being pursued for the debt, which will have a negative impact on your credit score rating.

Overdrawn Directors Loan Account

In a similar vein to personal guarantees, taking out a directors loan can also leave you at risk of your credit score rating being affected, especially if your company enters liquidation. If you have taken a loan from the company, the licensed insolvency practitioner overseeing the liquidation process can demand repayment of the loan in the interest of creditors. Failure to make the repayment can result in the Insolvency practitioner taking legal action against you which will affect your credit score rating and can lead to bankruptcy. If you are aware of an overdrawn directors loan account you should notify the Insolvency Practitioner as early on in the company liquidation process as possible.

Sole Traders / Partnerships

When a director owns a limited liability company, as described above, the company finances are designated as a separate legal entity to their personal finances. Sole traders or members of insolvent partnerships on the contrary are personally liable for business debts which means financial issues will be reflected in their personal credit score rating.

It’s crucial that directors are aware of the above exceptions when looking to place their company into voluntary liquidation. This is why it is so important to seek professional advice at the earliest stage possible. Our friendly team at MyLiquidation are always happy to advise on any concerns you may have regarding the impact of liquidation on your personal credit score rating- With this in mind, please don’t hesitate to get in touch with us today.

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