How to handle business debt, practical first steps
If your business is in financial difficulty, or you can see a difficult period coming, taking decisive action early is critical. The steps below are a practical starting point, but please remember that individual circumstances vary and speaking to a specialist adviser is always recommended.
Your legal responsibilities as a director
As a company director, it is essential that you understand your personal legal position when your company is in financial difficulty.
Seek advice immediately if: your company cannot pay its debts as they fall due, you cannot afford to pay staff wages, or the business receives a County Court Summons or Judgement. These are serious warning signs that require immediate action.
Personal guarantees
You may be personally liable for any debts which you have personally guaranteed, for example, a business loan or lease. These do not disappear when the company is insolvent.
Wrongful trading
If you continue to trade knowing the company cannot avoid insolvent liquidation, and you fail to take every step to minimise potential losses to creditors, you may be personally liable for company debts.
Fraudulent trading
Deliberately defrauding creditors, for example by taking orders you know cannot be fulfilled, is a criminal offence that can result in personal liability and criminal proceedings.
Director disqualification
If found to have acted improperly, you may be disqualified from acting as a company director for up to 15 years, in addition to other potential civil or criminal penalties.
Act early: The sooner you seek advice, the more options are available to you. Financial problems rarely resolve themselves, and ignoring them almost always makes the situation worse. Our advice is free and completely confidential, contact us today.