Insolvency will probably mean that your business will cease trading and if you are a limited company go into liquidation. If you are a sole trader or partnership you may go bankrupt and lose your personal assets such as your home.
CONSEQUENCES OF INSOLVENCY FOR LIMITED COMPANIES AND LLPS
For limited companies (or limited liability partnerships known as “LLP’s”) the consequences of insolvency will mean that the business will go into liquidation and stop trading or go into administration and be sold (maybe to a new owner). In some cases the outcome may be a company voluntary arrangement.
In the event of liquidation or administration, the insolvency practitioner instructed to deal with your company has to make a report to the Insolvency Service and in certain cases this may result in the directors being banned for a period of up to 15 years.
In addition, the directors or a third party may be liable for personal guarantees they have given to the company’s creditors if the business goes into insolvency. This is typically the bank who may have been given guarantees for a business loan or overdraft.
CONSEQUENCES OF INSOLVENCY FOR SOLE TRADERS AND PARTNERSHIPS
For sole traders or partnerships (non LLP’s) the business owners are liable for the debts and their personal assets are at risk of being sold to repay their debts. This includes debts due to suppliers, HM Revenue and Customs, faulty work to customers and anyone else owed money by the business.
In addition it is possible in certain cases for bankrupted business owners to face bankruptcy restriction orders (“BRO’s”) if they have misbehaved whilst running the business. It is the Insolvency Service who investigates and takes these BRO actions against bankrupt sole traders or partners in a business.
“INSOLVENCY WILL PROBABLY MEAN THAT THAT YOUR BUSINESS WILL CEASE TRADING AND IF YOU ARE A LIMITED COMPANY GO INTO LIQUIDATION. IF YOU ARE A SOLE TRADER OR PARTNERSHIP YOU MAY GO BANKRUPT AND LOSE YOUR PERSONAL ASSETS SUCH AS YOUR HOME.”
If you are worried about what action may be taken against you, get good advice early on from a licensed insolvency practitioner, contact us
for a free consultation.