If I declare bankruptcy, what happens to my company?
Bankruptcy can be an extremely effective way of dealing with a serious debt problem. However if you are managing a company there could be serious implications.
Very often bankruptcy is overlooked as a debt solution. However it can be an extremely useful one. If you declare yourself bankrupt, all of your unsecured debt will be taken away from you. You are generally bankrupt for 12 months after which you are discharged debt free.
Of course, where you have considerable equity in a property, it is highly likely that the house will have to be sold.
One the other hand, if your house has no equity in it you should be able to keep it. As such, if you are in business or are a company director and have no home equity, bankruptcy might seem like an attractive solution to you.
However, there are other implications for business people that you will need to be aware of.
Company directors who are bankrupt must resign
A bankrupt person cannot act as a limited company director or in the capacity of managing a limited company.
For this reason if you want to declare bankruptcy, the only way that you can keep your business running is if you appoint a new director who can take over from your duties while your bankruptcy remains in place.
If a replacement director is not available, then the company may be forced to close. As such, many company directors choose to avoid bankruptcy if they can and opt for an alternative debt solution such as an individual voluntary arrangement.
Sole traders may find banking difficult
If your business is not a limited company, then the effects of bankruptcy are very different.
You will be able to continue to operate as a sole trader business without the burden of your personal debt. As such bankruptcy can be a very useful tool for self employed people who have no property to lose.
However, one of the problems with declaring bankruptcy as a sole trader is that you may have to close your business bank account. If your business account is with the same bank as your personal account and you owe money to this bank, the business account may be frozen or closed after you declare bankruptcy.
Once bankrupt, you can open a new personal bank account, but it may not be easy to open a new business account.
One solution to this problem is to open two new personal accounts, one for personal, and one for business activities. However, as your credit rating will be affected, it is unlikely you will be given overdraft or credit card facilities for either of these accounts.
Overall, whether you are a company director or sole trader, declaring bankruptcy may have a significant impact on your business. Bankruptcy can be a very good way of resolving personal debt. However, if you are considering this as a solution, you will need to plan carefully to ensure that any negative impact to your business is minimised.
If your business is in financial difficulty why not talk to us about possible solutions such as http://coopermatthews.com/bankruptcy.html
Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.
Cooper Matthews specialise in Business Turnaround providing straight forward insolvency advice both to businesses in difficulty and business owners with personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.
Share this article:
facebook
twitter
delicious
digg
reddit
stumbleupon
newsvine
Insolvency Practitioners we use are members of one of:
