Can personal bankruptcy affect your business?

Applying for your own bankruptcy can have a serious impact on your business. Julian Donnelly of James Rosa Associates Ltd explains how it effects your business and what options you may have.

Personal Bankruptcy Affect on Business

What is the impact of bankruptcy on businesses?

Struggling with personal debt when managing a company can have serious implications on both your private life and your business. Therefore, it’s imperative to be aware of all the options open to you, as you can minimise the impact on your business while tackling personal debt.

How does bankruptcy affect company directors?

The impact

If you’re a company director of a limited company, being declared bankrupt will have a serious impact on your business. Undischarged bankruptcy means you are no longer allowed to act as a company director for the 12-month period of your bankruptcy. Depending on your conduct, this period could even be extended up to 15 years with a Bankruptcy Restriction Order.

You’ll also be legally prohibited from managing, forming or promoting your current, or any other, limited company without permission from the courts. If you’re the sole director, personal bankruptcy can even result in your company being liquidated.

How to minimise the impact

However, you do have options which can minimise the impact of bankruptcy on your business. For instance, appointing another company director to run your business for you before bankruptcy proceedings start may ensure your business is run more in a manner you would wish.

If there are other directors in your company, you can also simply hand over your responsibilities and resign your own directorship, ensuring transition is as smooth as possible.

How does personal bankruptcy affect sole traders?

Bankruptcy doesn’t have the same impact on sole traders as it does for directors of limited companies. If you’re self-employed, you will be able to continue trading after you’ve declared yourself bankrupt, as long as you do so under your own name, or the name you traded under when you were declared bankrupt.

You will also be allowed to keep any tools or equipment that you use for your business, so long as they are not of excessive value. Vehicles necessary to the running of your work will also be secure. However, cars used to get you to and from an office may potentially be at risk, unless they are worth under £1000.

It should also be made clear that no matter whether a company director or sole trader, you also won’t be able to obtain credit of more than £500 from anyone without telling that person that you are an undischarged bankrupt.

What are the alternatives to bankruptcy?

Bankruptcy is often a last resort. Ultimately, wherever possible creditors want you to continue in business so that you can continue generating income to repay them.

There are also alternatives to bankruptcy which allow you to deal with debt while continuing as a company director:

  • Individual Voluntary Arrangement (IVA)

This is a legally binding agreement between you and your creditors stating the amount to be repaid each month. It may be possible to negotiate this amount, and even reduce the overall amount you owe, while continuing in your capacity of company director.

  • Debt Management Plan

This lets you reach an agreement with creditors over how to repay your debts at an affordable rate if you’re struggling to make repayments.

What should I do when facing bankruptcy?

When facing bankruptcy, it is important to act quickly and seek specialist advice to find the best way out of your debt situation. A debt specialist can help you negotiate with creditors for a more favourable outcome for you, your family and for everyone involved in your business.

Julian Donnelly James Rosa

About the author

Julian Donnelly is managing director of James Rosa Associates Ltd, a firm specialising in tailored financial reconstruction, offering support and debt advice to individuals and businesses.

Julian was once declared bankrupt after losing his home, his relationship and his job (https://jamesrosa.co.uk/bankruptcy-my-story/ ). He was discharged from his bankruptcy after eight months and a few years later founded James Rosa Associates to help others facing unmanageable debt. He now writes under the name ‘Mr Bankruptcy’ to help people who find themselves in the same position.

See also

What happens once I've been discharged from bankruptcy?

What are the differences between an IVA and bankruptcy?

Bankruptcy orders (2503)

Find out more

Applying to become bankrupt (Gov)

Bankruptcy Restrictions Orders and Undertakings (Gov)

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