The limited company structure typically offers directors limited liability for the company’s debts: this means that the directors’ personal assets are protected in the event of insolvency.

However, there are circumstances in which the corporate veil can be broken.

In this article, we will explore the concept of limited liability, the circumstances under which personal assets may be seized, and the steps directors can take to protect their personal assets from being seized in the event of a Ltd Company’s financial difficulties.

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Circumstances Under Which Personal Assets Can Be Seized

While limited liability is an attractive feature for many directors, there are certain circumstances in which creditors can seize the personal assets of directors.

These circumstances include:

Misfeasance

Misfeasance essentially means a divergence from a director’s legal duties. This term may include wrongful trading, which means to place priorities other than creditors foremost once insolvent, or fraudulent trading, which means to have done so ‘knowingly or wilfully’.

Any insolvency practitioner has a legal duty, during the liquidation of a company, to investigate directors’ actions in the period preceding insolvency. If it is discovered that directors failed to put their creditors’ interests first, a charge of wrongful or fraudulent trading may follow.

These can mean directors are liable for debts and/or trading losses.

Personal Guarantees

Personal Guarantees, as their name suggests, are legally binding contracts whereby a company member, often a director, specifically signs away the limited liability. Commonly, directors will place their family home on the line in order to secure a business loan of some kind.

Personal guarantees typically offer a first charge to a lending institution which gives them a very high level of power over the listed asset should debts not be paid.

Personal guarantees are the most common reason for a director to find a personal asset such as a house up for sale, to repay a corporate debt.

Bailiffs Have No Powers of Seizure for Personal Assets

We are sometimes called by limited company directors concerned that bailiffs, operating on the instructions of angry creditors, can remove personal goods from their business premises.

As stated above, personal goods are never a part of corporate debt for limited company directors. The issue of misfeasance referred to above is only something which would be assessed post-insolvency so at the stage of bailiffs, your personal goods are completely off limits.

Bailiffs have no legal mandate to remove personal assets in any situation. They can take business assets, but only items which belong to the company, and nothing on hire-purchase.

Goods they can seize include:

  • Money
  • Company vehicles
  • Office equipment
  • Inventory
  • Machinery

No bailiffs, except High Court enforcement officers with a warrant, have the power to force entry into business premises

Protecting the Personal Assets of Directors

While there are circumstances in which the personal assets of directors may be seized, directors can also take steps to protect themselves. These include:

  1. Maintaining Proper Corporate Records: Keeping accurate and up-to-date records of the Ltd Company’s financial dealings can help demonstrate that the company complies with regulatory requirements and that the directors have not engaged in illegal or fraudulent activities.
  2. Separating Personal and Corporate Finances: Directors must maintain separate bank accounts and financial records for the Ltd Company and their finances. This can help to demonstrate that the company and its directors are independent entities and can make it more difficult for creditors to seize personal assets.
  3. Obtaining Professional Advice: Directors should seek the advice of a qualified professional such as ourselves.

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