In most cases, limited company directors are protected from corporate debt and shouldn’t see fallout that affects personal finances.
However, there are some situations that can invalidate the protection which normally applies.
Read on to find out more…
Liability for Personal Assets as a Result of 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 the actions of directors in the period preceding insolvency. If it is discovered directors failed to put the interests of their creditors first a charge of wrongful or fraudulent trading may follow.
These can mean directors are held liable for debts and/or trading losses.
Liability for Personal Assets Due to 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 of 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.
Baliffs Have No Powers of Seizure for Personal Assets
We are sometimes called by limited company directors concerned that bailiffs, operating on the instructions of an angry creditors, can remove personal goods from their businsess 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:
- Company vehicles
- Office equipment
No bailiffs, except High Court enforcement officers with a warrant, have the power to force entry into a business premises.