Director Liability Checks

What are personal guarantees?

Personal guarantees expose directors to considerable risk since they become personally liable for company debts if insolvency occurs and the guarantee is triggered.

Once liquidation begins, creditors can pursue directors for repayment, including their personal assets, and may resort to legal proceedings or force the sale of secured assets like property.

Bankruptcy is a genuine threat if directors cannot pay, though seeking early professional advice may help negotiate terms or limit liability.

Ultimately, the guarantee is enforced regardless of the company’s closure, so directors must review terms and act promptly to protect themselves.

What are overdrawn director loan accounts?

Overdrawn director loan accounts become company assets during liquidation, and directors are required to repay the owed amounts, which can be substantial.

Failure to repay could lead to legal action, bankruptcy, and even director disqualification if mismanagement or dishonesty is found.

Liquidators will assess the director’s financial position to seek repayment, sometimes negotiating manageable settlements if necessary.

Handling an overdrawn account transparently and with professional advice helps reduce personal risk and legal consequences when winding up the company.

What are bounce-back loans?

Widely taken during the pandemic, during liquidation, the government-backed bounce-back loan guarantee covers any outstanding debt.

This means most directors will not be personally liable if the funds were used correctly and lawfully.

However, substantial risks arise if directors used the loan for personal benefit or dishonest purposes, leading to possible personal liability, disqualification, and even prosecution.

Professional guidance and working with an insolvency practitioner help mitigate personal exposure and ensure the loan is dealt with in accordance with regulations.