If you are a sole trader struggling to meet your financial obligations, or a company director worried about personal liability – where personal guarantees or overdrawn directors’ loan accounts are concerned, for example – UK Debt can provide valuable professional advice.
Getting into arrears with your suppliers or lenders can lead to interest and charges being added, creating a debt spiral which makes the situation unmanageable. Here we look at some of the financial problems you might be experiencing, and how we can help.
Sole trader business debts
Running a business as a sole trader or a self-employed individual can be very isolating. This is particularly so when your business is in financial distress and you are finding it difficult to keep up with payments.
As a sole trader you are personally liable for any debts of the business, which means that in the worst-case scenario you could lose your home if a creditor decides to petition for your bankruptcy.
What are your potential options as a sole trader with business debts?
Unofficial negotiations with creditors
You may be successful in negotiating lower repayments with creditors, which although only temporary, can help you regain control of your business finances. A lower payment or more time to pay, along with greater control of business cash, may be the only help you need.
We can approach creditors on your behalf if necessary – our professional status and expertise may influence their decision if they believe you can afford to repay in full in a reasonable timeframe.
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement allows you to ‘ringfence’ your unsecured debts within a formal insolvency process, and in doing so, protect yourself from further creditor legal action. You pay a single monthly IVA payment that is affordable to you – an arrangement that typically lasts for four or five years in total.
Our licensed insolvency practitioners can advise on the suitability of an IVA in your circumstances, and whether it would be the best solution for you.
In some circumstances bankruptcy can be the only option if you are in debt, but this process is generally seen as a last resort. Bankruptcy can provide a fresh start in some instances, however, and if it is right for you we can offer guidance throughout and a professional ‘sounding board’ to help you.
Company directors and personal liability
If you are a limited company director, you can be held personally liable for some or all of your company’s debts under certain circumstances. The limited company structure generally offers legal separation between the business and its directors, but in some instances the ‘veil of incorporation’ can be lifted when the business becomes insolvent.
You might be facing personal liability if you have provided a personal guarantee to one of your lenders, for example, if your director’s loan account is overdrawn when the company enters insolvency, or if wrongful or unlawful trading is uncovered.
Essentially, if creditors have suffered higher losses due to your actions as a director, either at the time of insolvency or during the preceding years, you face scrutiny by the Insolvency Service.
Ramifications of personal liability for company directors
In cases such as these you could face personal bankruptcy at the same time as your company is going through a corporate insolvency procedure. This might be company administration, for example, or liquidation whereby all company assets are sold and the business closes down.
One potential option if your company is liquidated is to claim director redundancy. Strict eligibility criteria apply, but basically you need to be an employee of the company as well as a director.
This means your company should have been incorporated for a minimum of two years, you need to have worked under a contract of employment for more than 16 hours per week in a role that is more than advisory, and have your salary paid via PAYE.
Insolvency and limited company directors
The formal insolvency solutions mentioned above in relation to sole traders – IVA and bankruptcy – also apply if you face personal liability as a company director. Eligibility for an IVA relies on earning a regular income, however, so this could prove to be an issue if your company is liquidated and you have no other form of income.
To find out more information about your potential options if you are facing unmanageable business debts, call one of our experts at UK Debt. We offer free same-day consultations to quickly assess your situation, and establish the best way to proceed.