Will a Creditors’ Voluntary Liquidation Affect my Personal Credit Rating?
When considering whether a Creditors’ Voluntary Liquidation will affect your credit rating we need to consider what a Creditors’ Voluntary Liquidation is. Also, we need to understand what the CVL is used for.
A Creditors’ Voluntary Liquidation is a liquidation of an insolvent limited company debt, not a personal debt. There is quite a lot of confusion surrounding the terminology used in insolvency. The use of terms like company bankruptcy, do not help. Bankruptcy in the UK, unlike the US, is specifically for an individual, not a limited company.
A limited company is a legal entity in law has its rights, rules and regulations. This is a key reason why there are so many regulations surrounding the company closure.
As the company is a legal entity, the debts and assets belong to the company, not the director who are officers of the company. Think of the ship as the company and the directors as the ship’s crew. So, if the company is wrecked for any reason, the crew can leave the ship unharmed. Legally then the debts belong to the limited company so the director’s personal credit rating should not be affected per se’. However, there are exceptions where the protection of the corporate veil is pierced. The most common example would be where a personal guarantee has been signed.
A Personal Guarantee Can be Called at Any Time
To be clear the personal guarantee can be called at any time without getting to the liquidation stage. Most agreements have insolvency clauses in them.
Therefore the most common risk to the personal credit rating will usually come from personal guarantees.
In practical terms, the Creditors Voluntary Liquidation will only crop up when the director may be applying for another business bank account, not a personal bank account.