Posted on: Monday 8th February, 2021
If your business is struggling to survive the effects of the coronavirus pandemic and you’re worried about liquidation, you may be wondering if you’re at risk of personal liability as a director.
It’s common for lenders to demand personal guarantees from directors to reduce their risk should a business default, but the government brought in new loan schemes to help businesses secure emergency funding amid the chaos of coronavirus.
The first of these was the Coronavirus Business Interruption Loan Scheme, or CBILS. So is the director liable in cases of company liquidation with unpaid CBILS, and what happens to this type of loan when it can’t be repaid?
The government guarantees 80% of a CBILS loan, and those under £250,000 don’t require a personal guarantee. They are required for loans over £250,000, but limitations were put in place to restrict a lender’s powers of recovery.
A personal guarantee means that a director becomes liable to repay outstanding amounts when their company can no longer afford the loan, and some lenders did demand these from directors for loans under £250,000, despite government guidance.
When a company is liquidated, the limited liability structure typically means that directors aren’t liable for business debts. Exceptions to this rule do exist, and one is when the director has provided a personal guarantee.
Where directors haven’t fulfilled their statutory duties, they can also face liability for debts incurred by the company. In the case of a CBILS loan this might involve giving false information on the application, for example, or using the loan for personal purposes rather than for the economic benefit of the company.
It’s preferable for companies to voluntarily enter liquidation rather than waiting for a creditor to take action, as there’s a high risk that creditor losses would increase. Creditors’ Voluntary Liquidation (CVL) offers more control to directors who are already facing uncertainty due to unpaid CBILS, and reduces the chance of personal liability arising from wrongful trading.
If a company is facing liquidation, it may be possible for the directors to claim redundancy pay and other entitlements. The average claim for director redundancy is £9,000, which could repay an unpaid coronavirus business loan and potentially other company debts. This money could also be used for the Creditors’ Voluntary Liquidation procedure.
It’s crucial to cease trading immediately when a company becomes insolvent, and seek advice from licensed insolvency practitioners (IPs). By prioritising your creditors you fulfil your legal duties as a director, and reduce your risk of liability.
Redundancy Claims UK can provide the guidance you need at this worrying time. Our licensed insolvency practitioners will present your best options and let you know if you’re eligible to claim redundancy pay. Please call our team of experts – we offer free same-day consultations and operate from a broad network of offices throughout the UK.
Does accepting a new job offer before the date of redundancy prevent a director making a claim for redundancy to the RPS
If you are looking to close your limited company, you may have attempted to strike it off by submitting a DS01 form to Companies House. This process is also sometimes referred to as dissolving or company dissolution.
A Creditors’ Voluntary Liquidation (CVL) is an official procedure whereby a company’s assets are liquidated in order to pay creditors. It’s typically initiated by directors when their company becomes insolvent and there is no hope of business recovery.
Redundancy claims are a very professional company, Caroline who is dealing with our case is friendly, compassionate and very clear in explaining everything during this difficult time. The service we have received has been amazing, Thank you.Tina Hill Director of a professional services firm