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director bbl
But even we’re surprised by how many inquiries we’ve been getting that centre around one specific question - can a director be held personally liable for a bounce back loan?

So we’ll take the time to do a deep dive into this question and answer it as best we can - because it’s not a strictly yes or no answer. 

Private investigations

One reason why we think a lot of directors are becoming more nervous than they need to be about the prospect of being made personally liable for bounce back loan arrears or other debts is due to an imminent law change. 

The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill has had a lot of publicity before its legal ascent probably coming before the end of 2021. 

The main headlines have been the new power being granted to The Insolvency Service that will allow them to investigate directors of dissolved companies to see if there was any unsavoury activity such as striking off the company while it still had a bounce back loan or other debt. 

In these specific circumstances, which could go back several years depending on the investigation, then a director who knowingly breached their legal duties, or should have known, could find themselves in trouble and facing a range of punishments including fines, disqualification of up to 15 years as well as being made personally liable for improperly incurred debt including bounce back loans. 

The key point to remember here is that a bounce back loan had a wide-ranging remit for use - to provide an economic benefit to the business during the pandemic. 

This criteria could be met in many ways including staff costs and wages, new plant or machinery purchasing, investing in tangible assets or being used to pay down existing debt. 

It would also be perfectly legal for a business to have borrowed the lump sum and put it all into a savings account and not spent a penny - as long as they make the agreed repayments when they fall due. 

Some directors are worried because they spent the money they borrowed - which was the original purpose! - then they might be in trouble.  

As long as they can demonstrate that it was spent on reasonable and legitimate company business, and not on a range of supercars for directors for example, then they will have little to worry about. 

If the business is clearly unviable or cannot pay its accrued debts and the only realistic way forward is through liquidation then the bounce back loan will be treated as any other type of unsecured borrowing and will be written off. 

Unlike the Coronavirus Business Interruption Loan Scheme (CBILS) where the government guaranteed 80% of the loan and the bank could seek a personal guarantee from directors for the remaining 20%; a bounce back loan was 100% guaranteed. 

This meant that even if the business was liquidated and the loan couldn’t be repaid in full, the bank would still be able to claim back its capital providing it could prove it had made a reasonable attempt to reclaim the loan. 

In any liquidation, the insolvency practitioner has to provide a report on the directors actions leading up to the insolvency event and will be satisfied if the directors can provide a reasonable and logical explanation, with evidence, for how they used the bounce back loan to support the company. 

If they have any questions, they will raise them with directors before submitting the report giving them ample opportunity to put their version of events and iron out any areas of confusion.

Sole Traders

The picture is slightly different when it comes to sole traders as their trading structure doesn’t recognise any legal separation between the company and the individual.  

Any debts incurred will fall onto the individual including any bounce back loan debt but an insolvency practitioner will be able to go through any alternative arrangements a sole trader could benefit from including an Individual Voluntary Arrangement (IVA) which could avoid any outright defaults. 

Even if a sole trader does default and has to ultimately pay back the sum through other methods the British Business Bank has stated that “no recovery action can be taken over a principal private residence or primary personal vehicle for sole traders that have defaulted on bounce back loans.”

The only other circumstance in which the director of a liquidated company could potentially be made personally liable for a bounce back loan is if it was used to make preferential payments to creditors. 

In this scenario, a director would have borrowed and used the loan to refinance existing debts by paying off only those that had been personally guaranteed by them while leaving other liabilities to go unpaid. 

As well as being a breach of their director’s duties and obligations, in the event of a subsequent liquidation, this could be seen as a preferential payment and they could ultimately be made personally liable to repay these debts.

A bounce back loan doesn’t have any personal guarantees attached and the bank will ultimately be able to reclaim 100% of the loan from the government in the event of a liquidation and this and other debts being written off. 

Also if:

Then there will be no personal liability incurred from the bounce back loan and it will be closed for good as part of the liquidation process. 

Bounce back loan arrears are just one area of concern that directors might be focussing on at the moment. 

If your business has problems with VAT debt repayments, overdue HMRC arrears, issues with the end of the furlough scheme or other hurdles that seem too high to overcome right now - get in touch with us today. 

Our free initial consultation for business owners and directors provides them with the chance to talk to an insolvency professional discreetly and honestly about what they and their business is going through. 

Once we get a clearer understanding of the immediate issues and difficulties they’re tackling, we can help them create an effective and efficient strategy, including some actions that can be implemented immediately. 

Then we can focus on solutions for the next most immediate and challenging problems while the directors can once again dedicate their time and energy to looking to the future. 

End of the line

There are still local spikes here and there all over the UK and as we enter the traditional winter flu season, there might be temporary measures deployed if coronavirus cases rise sufficiently.

The government has also declined to implement planned vaccination passports for people attending large events in England so individuals and businesses could now begin to plan their Autumn activities with more certainty. 

Against this backdrop it’s been confirmed that the various remaining pandemic support measures including the coronavirus job retention scheme or furlough will definitely end on September 30th along with a lifting of the ban on winding up petitions.

While it was expected that creditors would be able to seek winding up petitions once again, there’s been a sizable catch - so that now bringing a winding up petition is literally a £10,000 question. 

New legislation to be introduced in parliament shortly will:

These measures will remain in place until March 31 2022.

Business Minister Lord Callanan said: “The time is right to lift the insolvency restrictions that were needed during the pandemic. 

“At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures and protections will help them to do that.”

The minister said that businesses should pay their contractual rents where they’re able to do so and also confirmed that existing restrictions will remain in place on commercial landlords from pursuing winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic.

Additionally commercial tenants will continue to be protected from eviction until March 31 2022 while a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic is implemented.

One measure not time bound by restrictions are new legal powers given to the Insolvency Service which allow them to retrospectively investigate the conduct of directors of dissolved companies. 

If they can prove that directors were dishonest or culpable in behaviour which led to their company’s failure then as well as being made personally liable for any debts incurred, they can be disqualified from acting as a director for up to 15 years. 

This includes bounce back loans so obtaining professional advice is critical if you’re thinking of closing your business.

Chris Horner, Insolvency Director with said: “The new £10,000 threshold for winding up petitions sounds like a big increase from the previous minimum level of £750.

"But in reality, due to the associated expense in issuing winding-up petitions, the vast majority of pre-COVID winding-up petitions were over the new level in any event.

“Eager creditors will examine their options carefully and look to use whatever leverage they have.

“Hopefully, many companies use the new 21 day period to negotiate sensible repayment plans. Seek expert help if in doubt about how best to approach this.

“Like the insolvency moratorium that’s automatically granted if a company goes into administration, this provides valuable breathing space and time for a business to come up with plans to deal with problematic debt.

“This includes outstanding bounce back loans or VAT arrears - they haven’t been suspended - and a business can still close down, even if a company has these debts but only if it’s done using the right method overseen by an insolvency professional.

“For example, If a business with unsustainable debt wanted to close and started the process in the next couple of weeks - it could probably be concluded before Christmas, leaving the directors or owners free to begin a new venture or career in 2022.”

Why you should pay to liquidate your business

Time is only an asset if it’s used effectively. 

The 21-day negotiation period of winding up petition restrictions and £10,000 floor is only useful if you take advantage and get professional advice now because it will, like all the others, cease eventually. 

We offer a free initial consultation to any business owner or director who wants to know the best way to close their company or if possible, restructure and keep it alive, even if it has debts.

Once we get a better understanding of the situation, we can come up with a tailored solution possibly with more options and choices than you thought you had. 

But this is only possible if you use your agency and get in touch.


We’ve previously written about what the changes contained in the bill mean for directors of companies that have closed down, including ones that closed with outstanding CBILS or bounce back loan debt

Dissolving a company is a simple and relatively quick and cost effective way of closing down a business but only under a strict set of circumstances. 

We’ve covered at length the potential for the defaults from unpaid bounce back loans to run into the billions so the new law is a sign of how seriously the government is preparing to take the problem and what this means for directors. 

The only current way available for creditors unhappy with the conduct of directors of a dissolved company would be to apply to have the company restored so they could then apply to have it placed into liquidation and ask the liquidator to investigate the conduct of directors

This is a complex, time consuming and potentially expensive process which is why it is so rarely pursued. The new law simplifies matters and grants new powers to The Insolvency Service to investigate the conduct of directors of dissolved companies without resurrecting the business. 

Do you need to worry if your CBILS loan has a personal guarantee attached?

Directors Disqualification

According to the latest available statistics from The Insolvency Service, the number of company directors disqualified fell to 972 for 2020/21, down 24% from the 1,280 in 2019/20.

The fall will be partly due to various temporary support mechanisms and measures brought in to reduce company insolvencies such as statutory demands and winding up petitions being suspended and the suspension of personal liability arising from wrongful trading

The average length of directors disqualification held steady at around six years. 

Disqualification Length

Disqualifications can happen for actions uncovered by liquidators including attempting to defraud HMRC (which purposefully avoiding repaying bounce back loans and CBILS would be classed as), falsifying records and transferring money out of an insolvent business. 

In the early stages of the pandemic, HMRC gave as much forbearance as they could to delinquent companies as it was a unique situation but as the economy begins to open up and more businesses begin trading under more recogniseable circumstances, they will begin to step up their recovery actions. 

Combined with the new legal powers granted to The Insolvency Service, which the government expects to be used to generate a return, the number of directors' disqualifications will be almost certain to increase in the next 12 months.

Chris Horner, Insolvency director with Business Rescue Expert, acknowledges this could be a nervous time for some directors but wants them not to worry unnecessarily. 

He said: “Any director that liquidated their company through a Members Voluntary Liquidation (MVL) or a Creditors Voluntary Liquidation (CVL) has got nothing to worry about. I need to reiterate that as strongly as I can. 

“The new legislation is primarily aimed at unscrupulous directors who have tried to avoid repaying creditors and dissolved their companies to do it. 

“Done properly and for the right reasons, dissolution is the natural endpoint for many businesses and entirely correct - but using it to dodge your debts is not on. 

“It damages a perfectly good process by association, and it would be great to see The Insolvency Service punish those that have deliberately set out to defraud.

“Businesses that have outstanding bounce back loans or CBILS borrowing and have to close shouldn’t worry unnecessarily either. 

“As long as they have documentary or other evidence that outlines what the loan was for, the motivation behind the application, how the company dealt with the pandemic and restrictions and what the money was spent on, they will be in a good position to confidently answer any questions they may be asked in future.”

It’s a strange time right now for everybody - not just directors and business owners. 

It feels like a half-way house between eras, lockdown/post lockdown or pandemic/post pandemic, however you would describe it, we’re definitely changing from one set of attitudes, actions and sentiments to another. 

While these changes play out, directors might naturally be concerned, not only for the future of their business but also about the decisions they’ve had to take for the good of the company during the past year and a half.  

Anybody with immediate worries should get in touch with us for a free chat.  

We’ll be happy to set their mind at rest regarding their own actions and also be able to outline their immediate options to improve their short-term prospects. 

retrospective punishment for directors
The government has announced a new bill that will allow HMRC and The Insolvency Service to go after directors who dissolved their companies improperly leaving outstanding debts, including bounce back loans or tax.

The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will allow retrospective investigation and action to be taken against directors and can lead to disqualification and personal liability if they are found to have dissolved their company with outstanding debts. 

For the first time, authorities will have the power to investigate company dissolutions and strike offs retrospectively to make sure they were completed properly. 

The Business Secretary Kwasi Kwarteng said: “We need to restore business confidence and people’s confidence in business. 

“This is why we won’t hesitate to disqualify directors who deliberately leave employees and the taxpayer out of pocket. 

“We are determined that the UK should be the best place in the world to do business. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”

The sanctions include fines and a disqualification of up to 15 years from being a company director.

Should you be worried about bounce back loan fraud?

First announced in the Budget earlier this year, the measures will be introduced in parliament soon before passing into law. 

Chris Horner, Insolvency Director with Business Rescue Expert, said: “Dissolving or closing down a company is the natural endpoint of the business life cycle and can finally occur for many reasons. 

“Directors who thought it would be an easy way to avoid repaying bounce back loans or other debts should now be rightly concerned because for the first time, The Insolvency Service and HMRC will be able to investigate the circumstances of their dissolution to make sure it was completed properly. 

“Directors who liquidated their business properly have nothing to worry about - it’s those that tried to sneak their dissolutions under the wire that will be anxiously reading the headlines.

“There were over 415,000 company dissolutions in 2020 alone, so there are a lot of potential cases to be investigated almost immediately. 

“It will also force directors planning to close down to look at their liquidation options more closely as the proper method to end their business rather than taking their chances with a risky dissolution.

“These measures will ultimately create a fairer, more level playing field and will also be better for the treasury as we expect tax receipts to be higher and more outstanding bounce back loans to be recouped as a result.

The first step for anybody thinking of dissolving their business is to get some professional advice first. 

“They might have other options available to them but if they are determined to close down then we can let them know the right way to do it from the start.

“We’re also happy to talk to any director that’s nervous about any consequences of their dissolution although the majority will have nothing to worry about.”

Sole Director

Some issues can be addressed relatively simply while others that require professional insolvency services such as CVAs and administrations can necessarily take a little longer. 

One new thing we’re going to do in 2021 is to use some of these inquiries as examples and answer them publicly as well as we can.

Not only will it help demystify the sometimes opaque world of business and insolvency advice but it could also give you some food for thought if your business is going through something similar.

This week’s question: “Can the sole director of a company resign? And if so, what happens to any debt?”

Being a director has extra responsibilities above regular staff and shareholders. 

They have legal responsibilities and duties they have to carry out and while they can leave a business, there’s still some steps they have to follow - they can’t just walk out of the door with their bags packed. These fiduciary duties are defined under the Companies Act and there is a risk of significant personal liabilities if these duties are not complied with.

In a limited company they should put their resignation in writing and send copies to any other directors or shareholders. They don’t have to divulge any reason but they are required to state the date the resignation takes effect.   

They also need to inform Companies House through a TM01 form so they can update their records accurately. 

While this will be the end of their official association with the company, their conduct may be investigated if the company subsequently enters an insolvency procedure within three years of their departure and any evidence of malpractice is discovered. 

This could potentially lead to disqualification from being a director for a period of years if convicted. Similarly, they’ll still be held jointly and severally liable for any personal guarantees given while a director if the company can’t repay them as well as any further losses as a result of resigning from the company in lieu of dealing with the company's affairs.

In short we strongly advise against trying to walk away from a company, if you are the sole director, given these risks.

We asked Business Rescue Expert’s Insolvency Director Chris Horner, a licensed insolvency practitioner, what the criteria was for sole director resignation. 

He said: “If they’re also the sole shareholder of the business then they are deemed to remain in control of the company. They are effectively still a director even if they formally resign.

“The debt will also remain with the company and won’t disappear. If the debt is of a nature that it will continue to increase, this is an even bigger risk for the director.

“What happens next depends on their intentions. Legally a company requires at least one director to continue to operate so they would either have to find a replacement, willing to act as director; look to sell the business to someone who can resurrect the business or look at closing the company.

“If the concern is the company cannot realistically meet its obligations and pay its debts, the latter would be the appropriate route and a Creditors Voluntary Liquidation (CVL), would probably be the most efficient way of closure. If the concern on going down this route is the cost, there are a number of options to effectively fund the liquidation

We hope this gives you a little more clarity surrounding the position of directors and what they can do if they want to extricate themselves from a company but we would always recommend getting professional advice before making any hasty decisions and acting on them. 

There may be some advantages or benefits available that you don’t know about or could access if you chose other methods of proceeding. 

The best thing to do is always getting in touch first to arrange a free consultation with one of our expert advisors. 

We can quickly get to understand your situation more clearly and be able to advise appropriate, effective and efficient actions you can take - quickly.

tax debts
Not just in terms of businesses they’ve helped support but also how the Treasury and HMRC intend to recoup some of the billions spent underpinning the economy over the spring and summer months. 
One way will be to pursue directors that could now be personally held liable for the taxes of their companies owed in cases of tax evasion, tax avoidance or repeated insolvency and non-payment. 
The Finance Act 2020 came into effect on July 22nd 2020 and introduced provisions giving HMRC authority to issue a Joint Liability Notice (JLN) to those directors if certain conditions are fulfilled. 
A JLN could be issued for repeated insolvency and non-payment of tax if all of the following conditions are met:
The individual has been a director of at least two companies (known as the Old Companies) within a five year period AND:

The JLN would make the director jointly liable with the Old Companies for any tax liability at the date the JLN is issued and also with the New Company for any tax liability it owes at the date of the JLN and any tax liability arising within five years of the JLN being issued.
A repeated insolvency JLN has to be issued within two years of HMRC becoming aware of the facts that make it sufficient for them to issue the JLN. 
Anybody issued with one has an automatic right of review by HMRC or a right of appeal to the First-Tier Tax Tribunal although both have deadlines for initiating them.
Chris Horner, Insolvency Director with Business Rescue Expert thinks the repeated insolvency JLN has been set up for a specific purpose. 
“Given the combination of conditions attached to issuing a JLN, it would be a rare occurrence for any director to receive one. 
“It’s primarily aimed at directors of phoenix companies who continued to trade without paying their tax liabilities and also covers businesses that prioritised creditors such as their suppliers leaving HMRC as the largest unsecured creditor in repeated insolvencies. 
“To issue a JLN against an individual they have to have been a director of two failed companies within the five year period where HMRC has been the biggest creditor and be a director of a third company that needn’t be in insolvency but is in the same business or trade as the others. 
“The risk of directors being pursued for their companies unpaid tax is quite small and specific and if any director was unfortunate enough to have been involved with two business failures within five years they should definitely seek advice on any potential exposure before launching another venture.”
Directors might have the hardest jobs in any business.  Yes there are rewards they can enjoy that others can’t but all the pressure to keep the company alive is on them. 
Not only that but if the company becomes insolvent then depending on their actions leading up to insolvency they could also be exposed to claims of misfeasance, wrongful or fraudulent trading, termination of employment and even disqualification from being a director. 
Directors are also excellent at seeking out the best specialist advice and support whenever they need it. 
We’re available for a free initial consultation anytime you want to talk about your ideas for your business and to go over possible solutions to any issues facing your company. 
Our expert team of advisors have decades of experience between them and will likely have dealt professionally with any difficulty or problem you face. 
Then you can get back to making your company as successful and profitable as it can be.

Katie Price

They move from one gilded success to another without any downturn in between.  Even notoriously hard careers such as running their own business comes easily to them as the profits and plaudits perpetually roll in. Except when they don’t. 

The law applies to celebrities as much as it does to “civilian” directors as it turns out being a celebrity does not give you a golden ticket to business success - no matter how much of a winner you are. 

Take David Weir, better known as the Weirwolf. He’s one of Britain’s most decorated paralympians with eight London Marathon wins and six gold medals to his name with his sights set on adding to his collection in the Tokyo games next year. 

Training to paralympic standard leaves little room for anything else including meeting tax deadlines as he found to his cost this year when he was disqualified from being a company director for four years after failing to pay nearly £50,000 in overdue taxes. He’s unable to act as a UK company director now until 2023 at the earliest. 

He put his company, David Weir Limited, into liquidation in 2017 but further investigations by The Insolvency Service discovered that while he had received more than £400,000 from the company during its five years of trading, it had only paid £30,000 in corporation tax, owning an additional £49,469 to HMRC.

The Insolvency Service said: “Mr Weir failed to ensure that David Weir Limited met it’s financial commitments as regards to corporation tax and S455 tax and caused the company to continue trading whilst withdrawing funds for the benefit of himself. As a result the company became unable to meet its financial commitments to HMRC.”
Popular Greek international goalkeeper Dimi Konstantopoulos who served Middlesbrough and Hartlepool United with distinction recently saw his contemporary Greek restaurant "Great" close quickly.
Gareth Stobart, manager of Penza Properties' agent for the building, Linthorpe Property Management, confirmed the locks had been changed and told the Teesside Live website: "We have had to take the property back due to the amount of debt owed.
"The locks have been changed and we have gained access back to the building. Our lawyers are coming up with a few solutions to the way forward."

The Price is Right

Other celebrities try to diversify their business interests into different product ranges based on their fame and personality. 

Katie Price is a ubiquitous celebrity presence with many ventures including TV shows and appearances, clothing lines and fragrances.  

The Insolvency Service thought something smelled funny with her company KDC Trading Limited which hadn’t filed any accounts since 2017. Despite a warning that the firm would be dissolved if no accounts were forthcoming, the deadline passed in June this year and the firm will be broken up as a consequence. 

The company sold equestrian and clothing lines and the last filed accounts for April 2017 showed a deficit of £22,000. Katie Price also entered into an Individual Voluntary Arrangement (IVA) last year to avoid personal bankruptcy and give her the chance to pay off some of her personal debts. 

Liquidators are already going through the process of breaking up another Price owned company - Jordan Trading Ltd - which is the subject of a liquidators report to The Insolvency Service. 

Chris Horner, Insolvency Director of Business Rescue Expert, explains further: “When we work with an insolvent company, we have to submit a report on the conduct of each director of that company to The Insolvency Service. 

“Most of the time there’s nothing untoward to report and everybody has done their best to keep the company going. Sometimes though, we do find misconduct and we have to investigate the extent of it to determine if the director involved is unfit to manage companies in the future. 

“Misconduct covers many things including:-

“The Insolvency Service considers the report along with any other information or previous reports and will investigate further if necessary. They’d then look to go to court to enforce disqualification if the defendant does not accept a voluntary disqualification undertaking. 

“A voluntary undertaking would usually be more lenient than a court ordered disqualification regarding the length of the ban. The minimum disqualification period is two years but it can be up to 15 depending on the seriousness of the offences.  

“If a person acts as a director while banned then they’re committing a criminal offence and can be held personally liable for all the debts of the company they’re managing.”

The majority of clients we work with have been diligent with no blame attached as they executed their lawful duties to help keep their businesses alive. 

If you’re done everything you can and you need some help or if you’re anxious about the investigation process then contact us today.  

One of our expert advisors will set up a convenient and free initial consultation with you to discuss every aspect of the insolvency procedure including any possible likely investigations. 

We don’t mean that delightful, colour-changing reptiles are taking business decisions in boardrooms (although we can all think of companies where they couldn’t do a worse job).
According to David Pope of Hooyu, an identity verification and investigation company, a Chameleon director is one who has already been disqualified but by slightly altering their name - from Edward to Ed, Edd or Eddy for example - or their date of birth, can change to having a clean directorship.
He said: “Because it’s a government database, too often trading standards or other officers just take it as a fact that Companies House is reliable. But Companies House has no mandate to cross-check data, confirm identities, etc. It’s a real bugbear for them and there’s no diligence.
“There’s a systemic fault in how Companies House was set up. It needs more resources and there needs to be a change in the legislation to stop this happening.”
Additionally out of the 6,700 currently disqualified directors, over 800 or one in eight, still appear to have an active directorship according to the Companies House database.
It’s for this reason and several others, that Companies House have launched a wide-reaching public consultation on corporate transparency and register reform.

The consultation, the most comprehensive since companies legally began registering in 1844, is open until 5 August 2019 and concentrates on four main areas:

Louise Smyth, Chief Executive of Companies House, said: “This package of reforms represents a significant milestone for Companies House as they will enable us to play a greater part in tackling economic crime, protect directors from identity theft and fraud, and improve the accuracy of the register.”
Who goes there?
Identity checks are going to be a big part of the restructure. The consultation proposes “that directors, people with significant control and those filing information should have their identity verified. We’re also considering whether more information should be disclosed about shareholders.”
This is a serious change and it’s surprising that it doesn’t happen already. It means that if any prospective directors of a company are unable to satisfactorily verify their identity then Companies House will not incorporate the company. The small print of the consultation goes further and hints at changing the law so that if a registered company seeks to appoint a person whose identity hasn’t been verified then they will be committing a criminal offence!
The law regarding incorporation is slightly different as the appointment of a director doesn’t take legal effect until Companies House registers the incorporation documents.
Right now, Companies House accepts information and deals with any inaccuracies when they’re notified at a later date. A beefed-up and more aggressive regime will query information before submission and ask for additional evidence at the beginning of the process.
This puts the onus on the company to supply correct, verifiable information in advance rather than having to be chased up once incorporated or having other legal changes take effect.
They will also be able to take a more interventionist position regarding company names by proactively querying them and being able to reject them before they are registered.
They are also looking to work more closely with other government departments and databases including the HMRC to make automated cross referencing easier and improve joint statistical analysis. For instance they will scan company accounts submitted to HMRC and themselves for differences to highlight instances of fraud.
As Louise Smyth intimated, they will be more proactive in tackling other financial crimes such as money laundering. Businesses opening non-UK bank accounts will have to inform Companies House within 14 working days. There will also be a review of the misuse of corporate vehicles and structures.
One example being limited partnerships. Unlike limited companies or limited liability partnerships, limited partnerships can continue to exist even if the partners agree to dissolve it. It will be easier for courts to force them to cease business and shut down if it’s in the public interest to do so.  
They will also be taking a closer interest at other possible abuses including the number of companies that can be registered at a single address and more significantly on the number of directorships an individual can hold at any one time with mention of a possible hard cap.
Finally improved methods of data protection and privacy will be considered including carefully managed access to the register with only identified or authorised people allowed to file information and better protection for sensitive information.
The consultation is the first stage in the transformation project which will take years to complete and, of course, their fees are also expected to rise although reassuringly the government insists they will remain very low by international standards.

As mentioned above, we will be discussing the consequences of closing a company, and how that may affect directors in the future.

Director responsibilities

As a director, you are bound by certain responsibilities and must always act for the good of the company. Directors of limited companies have little risk (or limited liability) of falling foul of company debts if the business fails. However, you must have acted properly - in accordance with the Companies Act 2006 along with the Insolvency Act 1986.
If you do not act appropriately, or fail to act reasonably and keep proper accounts and records, you may face director’s liabilities. Furthermore, if you continue to take credit knowing the company does not have the resources to make repayments, you are at huge risk of personal liabilities for the company debts. This action is regarded as wrongful trading and, if proven, can put you at very personal risk. More information can be found on wrongful trading here. In short to avoid being accused of wrongful trading you should take steps to deal with the company’s insolvency when it is clear there is no chance of recovery.
If you continue to rack up debt when you have already determined the company will be entering liquidation, it may be classed as fraudulent trading. If found guilty, you could even face imprisonment.
Credit rating


As mentioned above, a director of a limited company is generally protected from becoming personally liable for company debts unless they have acted improperly. However, for sole traders and individual members of a partnership, the same cannot often be said. The above are personally responsible for any debts and assets, such as your home, could potentially be put at risk. Ultimately, the business is not a separate legal entity, and any adverse financial issues will be placed against your personal credit report. This can then have a great impact on any future business ventures or when seeking additional credit.
As a sole trader, you are also more at risk of a bankruptcy petition. It’s important to note that a creditor must be owed £5,000 to submit the petition against you personally, thus affecting you later in the future. Bankruptcy can affect your professional status, with many professional industries unable to hire those who have entered the procedure.

Personal guarantees

A director personal guarantee is often demanded by a lender in support of a loan application. For instance, the terms of a director personal guarantee, typically, makes clear that the director must pay back the debt should the business enter company liquidation. If the company does become insolvent, you will inevitably be left paying the debts as outlined in the personal guarantee.
Failure to make repayments or contact the company creditors regarding your financial situation may make it worse. They will, likely, personally pursue you for the debt. This will also be placed against your personal credit report, affecting you in any future business.
As some additional advice, we suggest you ensure you are keeping proper records for the business. For example, making sure all tax returns, VAT returns and annual returns are complete and on time to show that you acted properly during your time as director. Beyond a director personal guarantee, another reason you may suffer directors liabilities for the debts is that it is proven you didn’t act correctly. All directors have ‘fiduciary duties’, stating you must ask in the interest of your creditors and not yourself.
Examples of improper actions include:

Overdrawn directors loan account

Similar to the above, an overdrawn directors loan account means you are also personally liable for that particular loan. The licensed insolvency practitioner (IP) who will oversee the company liquidation procedure can demand repayment for the debt to help repay the creditors. The IP also has the power to take legal action against you personally for the repayment. This action could could even result in bankruptcy.
If you are aware you have an overdrawn loan account, yet the company simply cannot continue to trade solvently, you should seek to engage the appointed liquidator early in the process. This can help reduce the overall costs in the liquidation. Therefore, more funds are available for creditors, avoiding personal liability for legal costs. An overdrawn loan directors loan account will only show on your personal credit file if your liquidator has to take legal action. Similarly, if they obtain a judgement in default of repayment.

Business and personal credit reports

You have separate credit reports with agencies - one as a consumer and another as a company. The information in your business credit file, however, does not, generally, affect your personal credit report. The finances are kept separate. If the company has not yet built up a credit rating, the lender may take a look at your personal report. In the case of sole traders, the lenders may use software to integrate personal and business credit scores when making lending decisions. This enables them to find the likelihood of repayment of the debt. If you have previously entered an IVA or bankruptcy, that is likely to affect your ability to gain credit.
For limited companies, the information regarding your business credit file is obtained through a number of sources: Companies House and the Registry Trust (detailing County Court Judgements). If your company has successfully obtained business credit, the file will detail if the business met the terms and repaid in full. The file is designed to provide an overall picture of your company’s finances and practices.

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.
It’s 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.

Liquidation is different to bankruptcy

While we have touched on bankruptcy, it’s important to note that being a director of a limited company does afford you protection. As a director, you will not be responsible for the debt without a director personal guarantee, and if you have acted properly and in the interest of the creditors throughout your role.
Personal bankruptcy is a serious black mark against your credit. However, being the director of a company entering liquidation is will not leave a mark against the same.
Liquidation is different to bankruptcy and directors are not, generally, liable for company debts. The best thing you can do is seek advice at the earliest possible opportunity to ensure you do not suffer any liabilities or affect your personal credit rating in the future. Our business rescue experts can provide advice on the most suitable solution for your business, and what that means for you personally.

According to the Companies Act 2006, a director includes any person occupying the position of director, by whatever name called. Often, a company will receive advice on the day-to-day running from a person not holding the official position. Those who do not hold the official status of director - commonly called a de facto director or shadow director - are still bound by certain duties. Breach of those duties can lead to severe consequences, outlined later in the article.
While you may provide instructions the company does act upon, you are not solely considered a shadow director for providing advice in a professional capacity.
The below are examples where you could be considered a shadow director:

Shadow director

De facto director

As mentioned above, a de facto director is also not officially appointed a director, but they assume the role. For example, a company may rely on the skills and qualifications of an individual in a senior position. While there is no definitive test for determining whether a person can be considered a de facto director, relevant factors will be taken into account. For instance, what capacity was the individual acting? Has the individual been using the title of director in written communications? Is the individual part of the corporate governing structure? A de facto director will also be liable for the similar duties to a de jure director, under the Companies Act 2006 and Company Director Disqualification Act. You could be considered a de facto director if you:

Duties of a company director

As a director, there are specific duties you must adhere to. You must act in accordance with the company’s articles and memorandum of association and work to promote the success of the company. Similarly, you must exercise reasonable care, skill and diligence and avoid conflicts of interest. The director duties are owed to the company and enforcement can be taken if there has been a breach of duty. In an insolvency situation, director’s investigations will be carried out to look for any evidence of wrongdoing. You may be liable for offences under the Insolvency Act, so it’s important to err on the side of caution.

Risks from insolvency

Directors accept fiduciary, statutory and common law duties when holding the status. It has been said that shadow directors should also assume the same responsibilities. If you do this and act in the interests of the company, it’s likely you will reduce liability. However, if the company does enter insolvency, your actions will be scrutinised as part of a directors’ investigation. This will determine your role at the company, and identify any instances of personal liability. This might include:

Alongside the above risks, you could damage your personal reputation if associated with a company facing insolvency. This is even more prominent if you have been seen to act unlawfully to avoid legal repercussions.

Director disqualification

Shadow, or de facto directors, can be disqualified under the CDDA if in the ‘position’ three years before the start of the insolvency procedure. You can be liable for director disqualification if you have not met your ‘legal responsibilities’. For example:

The insolvency practitioner (IP) will file a report for the Insolvency Service to decide whether to commence disqualification proceedings. If the order is made, you will be unable to act as a director between 2-15 years. In addition, you may be ordered to contribute to the insolvent estate. Where fraud has been identified, you could even face criminal action. More information on the subject can be found here.

Manage the risks

There are certain actions available that can reduce the risks of the above procedures. You could allow board members to make the decisions on behalf of the company, and only act on their instructions. Alternatively, you could consider becoming formally appointed as a de jure director, so there is no doubt as to your position in the business.
Ensure simple measures are completed, such as completing and filing company accounts with Companies House. Taking care of these obligations will reduce pressure if the company faces signs of insolvency.
We do recommend seeking professional advice if you are unsure of your position, and need help mitigating the risks. Our business rescue experts have the experience to clarify your position and work to find the best possible solution.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association


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