Wednesday, March 27, 2024
HomePopularDoes Liquidation Affect Credit Rating Uk

Does Liquidation Affect Credit Rating Uk

Can A Company Liquidation Affect My Personal Credit Score Rating

Does a liquidation affect your credit score?

When company directors are faced with putting their company into they are likely to have many concerns about how the process will affect them personally. They might be concerned about whether they will be able to direct another company in the future or whether or not the liquidation will impact their personal finances, specifically, if it will affect their personal credit score rating.

The good news is that as a general rule, company liquidation ) should not have an impact on your personal credit score rating. As a director of a Limited Liability Company, your personal finances are protected from the companys failures so long as you have acted according to the Insolvency Act of 1986. If company directors have not acted responsibly and knowingly partaken in wrongful trading, for example, they will not be protected by the veil of incorporation imposed by the Insolvency Act and therefore may be held personally liable for the companys debts.

There are also a few more exceptions to this rule which can lead to liquidation affecting your personal credit score rating. Factors that make company directors personally liable for company debts include, but are not limited to:

When Can My Credit Rating Be Affected By A Company Liquidation

There are several instances when your credit rating can be negatively affected by a company liquidation.

For example, if youâre a director of another company as well as the one that has gone into liquidation and you try to obtain credit for the other company, you could be flagged as being involved in an insolvent company. While itâs not always the case that youâll be affected by this, some credit reference agencies may flag your credit file with a warning along the lines of âthis director has been involved with companies who have had previous financial failuresâ which could potentially affect your ability to obtain credit for a new company.

However, if your company goes into liquidation and your duties and roles as a director simply cease, then it will not affect your credit rating, providing that you donât take any further action to try and raise credit for any other company that youâre a director of.

Another instance when your credit rating might be affected by a company liquidation is if you signed a personal guarantee when you took out a business loan or another type of finance to start your company. A personal guarantee means that if your business cannot pay its debts, as a director, you have agreed to pay them out of your own personal finances so that creditors and lenders are not at a loss. Of course, if you are then unable to cover these debts through your own finances, your credit rating could be negatively impacted.

What About Getting A New Job

If you have been a director of a failed company and you are applying for a high profile job in national security or finance then it is likely that it will be flagged in what would be called an enhanced credit check or a “vetting procedure”. Whether it would stop you getting work is impossible to say as it would be at the discretion of the employer.

Additionally, if you would like to liquidate your company, call us on 0800 9700539 or you can fill out a form on our www.liquidatemycompany.com website and get a quote in minutes. We can talk you through the process, organise the legal paperwork and begin proceedings.

Read Also: What Do Credit Rating Agencies Do

Will Liquidation Affect My Credit Rating

A liquidation of your company will not affect your personal credit rating, as the company is a separate legal entity.

However, if you subsequently apply for credit in the capacity of a director of a limited company, the credit reference agency will likely identify that a company you were the director of has previously entered into liquidation and will alert the credit provider to this, which may impact on their ability to advance funds to the new company.

How We Can Help

How Does Bankruptcy Affect Your Ability To Get Credit?

If your company is struggling from unmanageable amounts of debt, and feel a liquidation could be your best option, we can help. Our insolvency practitioners have years of experience in helping struggling businesses. Our initial advisors can offer free, impartial advice and a no-obligation quote for the arrangement best suited for your business.

Don’t Miss: How To Improve Credit Score With Credit Card

How Can A Company Liquidation Affect My Credit Rating

A limited company in liquidation ceases to exist, and the directors duties cease. This does not appear on your credit rating. But it will be reported if you attempt to raise credit for another business you are a director of. The credit rating agency will note, exercise caution, the director has previous company failures. Usually, this does not cause a problem if it happens only once, but if you have several failures, it will be difficult for your business to get credit, even with a well-performing business.

Insurance companies are also particular on this point, and they may either refuse to insure or request a higher risk premium for business insurance.

How Is A Personal Guarantee Called In

A personal guarantee can be called in and enforced as with any debt.

How the debt is enforced depends on the approach adopted by the creditor.

To begin with, the lender will usually issue a letter of demand asking you to make payment of the debt. However, if you are unable to do this then the matter can quickly escalate through other forms of debt collection and enforcement.

The lender can apply for a County Court Judgement . To enforce a CCJ the creditor may look to send in bailiffs or High Court Enforcement to attempt to take goods away or enter into a controlled goods agreement.

Alternatively, the lender may seek to place a charging order over the Directors personal property and attempt over time to sell the house to realise the debt. They might serve a Statutory Demand. If they do this they will then have 21 days to pay off the debt or negotiate an arrangement. However, if the matter cannot be resolved then the creditor can start personal bankruptcy proceedings if the debt is over £5,000.

In view of these serious consequences for Director personal guarantees in Liquidation being called in, it is important to engage with the creditor and take advice at the earliest opportunity. Help is available and the earlier it is sought the more options there are that should be available. If help is not obtained at an early stage there will still be some opportunities to attempt to deal with matters but they may be more restricted.

Also Check: How To Remove Charge Off Items From Credit Report

Types Of Director Personal Guarantees

The most common way a personal guarantee is put in place is when a company Director applies for a bank overdraft facility. The bank will want security. However for a reasonably modest sum of money, the bank will often be content to rely upon a Directors personal guarantee, particularly if a company has no significant assets and is just starting up.

Director personal guarantees can take essentially two forms: secured personal guarantees and unsecured personal guarantees.

Can A Director Be Held Liable When A Business Goes Bust

How Does Bankruptcy Really Impact Your Credit Score?

This depends primarily on the type of company were talking about. A director of a limited company generally enjoys protection when it comes to personal liability for its debts.

There are some important exceptions to note though. They include:

  • Where the director signed a personal guarantee .
  • When business debts are a result of fraud.
  • Where the director has been found guilty of director misconduct.
  • Where the director has overpaid themselves from company funds.
  • The company has continued to pay shareholder dividends even when its insolvent.
  • When company funds have been used for non-business activities.

However, companies set up as sole traders and partnerships as many self-employed businesses are dont benefit from corporate protection. Here, the individual and the company are considered the same legal entity.

» MORE: Whats the difference between being self-employed and being a sole trader?

Don’t Miss: What Makes Credit Score Go Down

What Happens After The Iva Has Ended

The IVA should be removed from your credit report around six years from the date it came into effect. Considering this arrangement lasts for between five and six years, it should therefore be taken off just after it ends but this depends on your circumstances and whether the IVA is successful.

Once done and removed from your credit report, in the long-term you can start rebuilding your credit history. Its worth noting this will take time though. Still, by maintaining good financial practices, you should be in a great position to improve your credit rating.

Will Compulsory Liquidation Affect A Directors Personal Credit Rating

As a company director, its understandable that youll be concerned about the potential impact of liquidation on your personal credit score. The good news is that a limited company is a separate legal and financial entity from the people who own and run it, so their credit records are entirely separate. Therefore, none of the debts or legal judgments made against the liquidated company will appear on a directors or shareholders personal credit file.

However, there are a few instances when the liquidation of a company may impact your personal credit rating:

  • You signed a personal guarantee If you have signed a personal guarantee for a debt that is not repaid in full by the company on liquidation, you will become personally liable to repay the debt as outlined in the terms of the guarantee. The lender will be able to pursue you personally for the debt and any action they take will be placed on your personal credit file, which will impact your ability to access credit in the future.
  • You have an overdrawn directors loan account If you have an overdrawn directors loan account then the official receiver can demand repayment of the debt for the benefit of the companys creditors. They have the power to take legal action against you to enforce the repayment of the debt, which will leave a mark on your personal credit file.

Expert Advice for Directors

Insolvency Menu

Recommended Reading: Can Hard Inquiries Be Removed From Credit Report

Who Can Put A Company Into Liquidation

In a Creditors’ Voluntary Liquidation, the company’s shareholders pass a special resolution to wind up the company and an ordinary resolution to appoint a Liquidator who must be a licensed insolvency practitioner. A decision procedure, usually a virtual meeting, is subsequently held for creditors to confirm the Liquidator’s appointment or appoint another Liquidator of their choosing. Voting is by a majority in value of the creditors i.e. the largest creditors of the company will have the ultimate vote to appoint their own Liquidator. However, it fairly uncommon for creditors to nominate an alternative Liquidator from the one chosen by the shareholders.

In a Members’ Voluntary Liquidation, the company’s shareholders pass a special resolution to wind up the company and an ordinary resolution to appoint a Liquidator who must be a licensed insolvency practitioner.

Can You Still Get Finance Is It Like Bankruptcy

The basics of credit and credit scores explained

Credit Reporting Agencies do keep track of companies that enter and the names of the directors of those companies. When someone does a personal name search at a Credit Reporting Agency they will obtain details of any companies that have entered company liquidation while you were a director from the last seven years.

So what can you do? Very little it will be a mark of sorts on your credit record that will be found if someone looks deep enough. But it is not that often that someone does delve that deep into your credit record.

Also Check: What Is The Highest Credit Score Available

What Is Personal Guarantee Insurance

Personal guarantee insurance is an insurance policy to deal with a Directors risk of a call under the guarantee.

One such organisation, Purbeck Insurance Services offers such policies. It refers on its site to the following salutary warning:

When you sign a Personal Guarantee we understand its more than your signature on the line.

However, seeking to obtain such insurance is likely to involve a review of the companys financial position and future projections to enable an insurer to weigh up its risk and price the insurance premium accordingly. Typically you will not be able to obtain personal guarantee insurance for 100% of the sum that could be claimed. You can anticipate the limit to be at 80% of this sum.

Since December 2000 the HMRC crown preference returned. As a result, this has meant potentially increased exposure resulting from Directors personal guarantees in insolvency. HMRC regained its preferential status for certain debts such as VAT and PAYE. Those debts typically are substantial in insolvency cases so it is likely to significantly reduce the recovery a lender will make in the event of Liquidation. This in turn will have led many more calls being made under Director personal guarantees in Liquidation than otherwise might have been the case. As a result, it is more important than ever to get professional advice at the earliest stage.

How Insolvency Can Affect Your Credit Rating

So how does insolvency fit into all of this? Heres a summary of how the different types of insolvency can affect a credit file.

  • Personal InsolvencyActs of personal insolvency will affect a credit rating. Credit agencies will keep a record of the insolvency on the credit file for five years or more, depending on the circumstances. The act will also be recorded permanently on the National Personal Insolvency Indexan electronic register of all personal insolvency proceedings.
  • Corporate InsolvencyCorporate insolvency will be recorded on the Directors personal name search. Credit reporting agencies can also keep a record of the insolvency on the directors credit file. The insolvency may or may not affect the persons ability to obtain credit, and its up to the lender to make the decision.

So what about referring tax debts to collection agencies? Can that affect a client rating?

The Australian Taxation Office understands that some taxpayers may have trouble paying their tax debt. If your client has a tax liability, the ATOs approach is to work with your client so you can meet your obligations. If your client doesnt meet their obligations, the debt can then be referred to an external collection agency.

The collections agencys primary task is to either:

  • secure the debt in full
  • organise a payment arrangement.

These debts arent sold to the collection agency, and any remaining debts are referred back to the ATO for further action.

Also Check: Is American Express Good For Your Credit Score

Are Directors Personally Liable

A limited company is a legal entity in its own right, which serves to separate its finances and the agreements it enters into from the directors who run the company. Therefore, any debts that are incurred by the company are not the personal responsibility of the directors. That is the case even when the company is forced into compulsory liquidation by a creditor and there are insufficient funds to repay all of the creditors. In that case, the debts of the company would be written off.

However, there are three scenarios when that changes:

What Are The Obligations Of A Director If A Company Is Insolvent

How does a Chapter 7 Bankruptcy Impact a Credit Score? Will bankruptcy Destroy my Credit?

Directors must take adequate steps to ensure that the company does not incur any further debts. Once a company is considered insolvent, the Directors primary duty is to protect the interests of the company’s creditors. The company should cease making payments to all creditors but should continue paying ongoing insurance premiums. Directors should also take steps to secure, insure and protect the company’s assets.

You May Like: How Long Do Hard Inquiries Stay On Credit Report

What Can Affect Personal Credit

As mentioned above, sole traders who have failed to repay loans are likely to suffer from an adverse credit report. A limited company is completely separate. Therefore, entering liquidation will not appear on your personal credit file. However, a defaulted personal guarantee will mark against your report. Applying for a business loan can also affect personal credit where you are a new startup, as with insufficient information they are likely to check your own report. They may carry out a soft or hard inquiry and, if the business loan is rejected, it can reduce your personal credit score.Its also important to note that an IVA will be marked against your credit report for the entire period, and three months after. You may also struggle to obtain credit afterwards.

How Can Company Liquidation Affect My Credit Rating

Again, limited companies offer a lot more protection. Credit agencies will usually hold separate records for businesses and individuals, which means that changes to one wont affect the other and a liquidation wont show up on your personal credit record.

There are some exceptions, however, such as when youve provided a personal guarantee.

Sole traders cant go into liquidation. The insolvency routes available are the personal options, such as bankruptcy, which will show up on your credit record.

If you’re a sole trader and your personal credit rating is poor, it will likely affect your chances of getting a loan for your company. Similarly, unpaid business loans will have an impact on your personal credit rating.

Unlike sole traders, partnerships can usually be liquidated. However, as with sole traders, directors are personally liable for debts and a liquidation will likely show up on their credit record.

» COMPARE: Loans for people with a poor credit history

You May Like: How To Remove Late Payments Off Credit Report

RELATED ARTICLES

Most Popular