If my Limited Company Goes Bust Will I Lose my House?

If your limited company is in trouble, you may be wondering what the risks are to you personally, and in particular, surrounding your family house.

Could I Lose My Home If My Company Goes Into Liquidation?

Your home is generally not at risk if your limited company goes into liquidation, as the company and its debts are legally separate from you. However, exceptions exist if you’ve provided a personal guarantee, owe the company via a director’s loan, or acted improperly leading up to insolvency. Even if these conditions apply, it doesn’t automatically mean your assets, including your home, will be seized. If your property is co-owned, it further complicates the ability of creditors to obtain a sale order.

When Might Your Personal Assets be at Risk?

Personal financial risk primarily arises in a few scenarios:

1. If you have provided a personal guarantee for the company’s debts, creditors may pursue your assets, including your home, to recover what is owed.
2. If you have a director’s loan that you owe to the company, this becomes a liability that could be targeted for recovery.
3. Continuing to trade while knowing or reasonably suspecting that the company is insolvent could expose you to allegations of wrongful or fraudulent trading, making your personal assets liable for the company’s debts.

In cases where one or more of these conditions are met, it generally means you could face financial liability, which could, in due course, lead to recovery action against your assets.

Lastly, if your property is co-owned, this adds a layer of complexity for any creditor aiming to obtain an order for the sale of the property. Therefore, co-ownership could act as a protective measure, at least to some extent.

If you’re unsure whether your business is  insolvent you can use our insolvency test tool here.

When is My Home at Risk in Company Liquidation?

There are several key exceptions whereby limited company directors may be held personally liable for some or all of corporate debt, which can include losing a house.

(1) If you’ve signed a personal guarantee document – These documents are specifically designed to pierce the corporate veil and place personal assets as collateral for business debt. If you’ve listed your house as the collateral for the guarantee, it is likely to be called in by creditors in case of default.

(2) If you’re found guilty of wrongful or fraudulent trading – Placing interests other than creditors at priority is a serious offence, and any insolvency practitioner is required to investigate directorial conduct as part of a liquidation.

If you are found ‘knowingly or wilfully’ guilty of corporate misfeasance such as this, you can be fined or rendered personally liable for some or all of the corporate debt. This could, of course, propel you into personal bankruptcy if you don’t have the funds to pay, meaning your house is at risk.

Who is Liable if a Limited Company Goes Bust?

The good news is that if you’re working under a limited company structure, you most likely will not suffer any consequences to your personal finances if the company is bankrupt.

Limited companies are designed to offer precisely what they say on the tin, i.e. ‘limited liability’.

This won’t be the case, however, if you’re working as a sole trader, even if you’re using a separate bank account. From HMRC’s perspective, there is no difference between the personal and business finances of a sole trader, and, as such, you could lose your house if you’re in debt.

What Happens to Company Debts in Liquidation?

During insolvent liquidation, if there isn’t enough money from selling the company’s assets to pay all the debts, then those unpaid debts are typically written off. This means creditors may not get back all the money they are owed, and in some cases, they might not get anything back at all.

Once the liquidation process is complete and the available assets have been distributed, any remaining debts that cannot be paid are effectively cancelled and cannot be pursued further against the company.