February 27, 2020
If you are considering working with an insolvency practitioner and your company may go into liquidation, you might be wondering what’s going to happen to your personal assets. Do you have personal liability for debts taken on by your company? Will you have to declare bankruptcy, or will you lose your home if your company goes into liquidation?
At Liquidation Experts, we have more than 30 years of experience in liquidation, corporate administration and insolvency in Australia – and we’re here to help. In this article, we’ll discuss the basics about liquidation, bankruptcy, and the potential impact of liquidation on your assets property – including your personal home.
Note: This information is for informational purposes only. Consult with the appropriate legal counsel before making any decisions about liquidation, insolvency, and other such corporate restructuring changes.
As the director of a limited company, you have limited liability when it comes to company debt. You will not be held personally liable for the debts, in most cases – meaning your personal assets are protected, and there is no need to file bankruptcy, or worry about your house being taken when you go into liquidation.
If your company only has unsecured debt, you have no reason to worry about your house being taken if you enter liquidation. Your creditors will not have any claims on your personal assets – even if your corporate funds have run out and the liquidation process see creditors unable to be fully repaid, they will have no claim on your home, your property, or your personal assets, and you will be fully protected, unless insolvent trading or similar is found to have occurred.
In the vast majority of cases, this means that you will not have to worry about bankruptcy – or losing your house – after your company has been declared insolvent and has entered the liquidation or winding-up phase.
However, there are some situations in which it could be possible to lose your house during liquidation. Let’s discuss these in the next section – and how you can avoid these problems.
Unfortunately, there are some issues that could occur during liquidation that may affect your personal assets – and could lead to bankruptcy and the loss of your home.
The loan or credit is issued to the company, and can be repaid by the company – but if it is not repaid, the creditor has a direct claim on the guarantor and potentially their personal assets. Even if you enter winding-up/liquidation procedures with your company, you may still be held liable for such debts if you took out a loan or credit with a personal guarantee.
The best way to avoid this issue is to never sign personal guarantees. This may be difficult for new business owners, and it can be tempting to sign a personal guarantee to get credit or a loan – but it could lead to the loss of your home or personal assets.
If you are not able to repay the loan or work out some kind of payment plan, you may have to declare bankruptcy or be forced into bankruptcy – or the lender may be able to foreclose on your house directly, depending on the circumstances.
To avoid issues related to this, be ethical in how you use director loan accounts – and keep tight controls on how they are used to prevent borrowing from the company from spiraling out of control. Large, unpaid director loan accounts will need to be paid.
To avoid tax and super debts, ensure that your company is paid up on GST/PAYG taxes and superannuation at all times. Minimizing the amount of unpaid tax/super debts from the ATO will help safeguard you from personal liability.
Unethical behavior as a company director such as Insolvent Trading – Illegal, unethical behavior as a company director can result in a wide variety of penalties being levied against you – and even the loss of your personal assets, if judged appropriate by the court.
For example, if you are found to be responsible for insolvent trading – taking out more loans and debts when you were already unable to repay your current debts – you could be penalized heavily, and ordered to repay debts from your personal assets. This could result in bankruptcy and the loss of your house.
Another issue that could result in penalties is a “Phoenix transaction,” where company assets are transferred from one heavily-indebted company to a company without debt – with the intent of avoiding repayment to debtors during the insolvency process.
You may also be subject to penalties if you’re found to be in breach of your duties as a company director – not paying attention to the solvency of your company, failing to do due diligence on your financials, and so on.
As a company director, the best step to avoiding the loss of your house during liquidation is to be a diligent, reputable, and ethical company director. All of these above issues can be avoided if you are responsible – and avoid loans secured with your personal property, do not over-utilize director loan accounts, pay your taxes on time, and perform your job duties responsibly.
If you’re worried about losing your house when your company is found to be insolvent and is liquidated, we understand. The stress of winding down a company can be very difficult to deal with, particularly if you’re worried about your personal assets.
Need help understanding the process of company insolvency, and preparing for your own company to be liquidated? If so, Liquidation Experts is here to help. As ASIC-licensed, registered liquidators and administrators, we can help you understand what will happen throughout the liquidation – and give you the advice you need for a successful company liquidation in Australia.
We offer free advice 24/7, and can help you find the solutions you need to wind your business up successfully while protecting your personal assets. To get started, just give us a call at 1300 767 525, or contact us online.