Does Liquidation Affect My Credit Rating?
Many directors are rightfully concerned about the potential impact of liquidation on their personal credit rating.
We’ll explore how insolvency events impact credit in detail below.
» MORE Read our full article on What is Liquidation?
“How Would my Credit Rating be Affected by a Company Liquidation?”
A company liquidation will not usually affect your personal credit rating, because the company is a separate legal entity, benefiting from limited liability protection. The exception to this would be if you are personally indebted to the company, perhaps via an ovedrawn directors loan, in which case the liquidator could use court action to recover the debt. In this case, your personal credit would be impacted for 6 years.
There is also the possibility of the insolvency event appearing if you apply for finance as the director of a future company. In this instance, the credit rating agency is likely to flag your name as having been associated with a previous business failure. If it’s a single occurrence, it likely wouldn’t prevent you from borrowing again but, where multiple insolvency events show up, lenders will understandably be cautious.
Personal credit ratings of directors are typically looked into where the new company doesn’t have established credit of its own.
The typical response from the credit agency would go something like ‘You should use caution as this director has been involved in previous company failures.’ This could, for example, cause you to pay higher price for business insurance, as the insurance industry is particularly vigilant with credit checking.
How Long does Liquidation stay on a Credit File?
A liquidation event will be typically marked for 6 years on a credit file, although each credit agency will have their own protocols. Any defaults recorded by creditors in the period after the company liquidation may extend this period further.
Examples of When a Credit Rating Might be Impacted by Liquidation
Licensed insolvency practitioner Chris Andersen offers his view:
“My belief is that whilst the insolvency of a company should not impact on the personal credit rating of the director there must be consideration of the impact of personal guarantees or indemnities provided by the director to third parties which crystallise on the insolvency of the company. The inability to meet these could impact on the directors personal credit rating as this raises a liability in the directors name the same impact as any default/non payment of a sum due by the director personally.”