How does bankruptcy affect my running a 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 then unsecured debt is gone, and generally in only twelve months you are discharged and can continue debt free.
If you are a home owner with equity in the property it is quite likely that the house will be sold. However for business owners or company directors with no equity in property it can seem to be a very good option to solve your personal financial problems.
If you are a business owner or Director there are other serious consequences of bankruptcy that you 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 (or IVA).
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.
There is a way round this issue – 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.