If my company is wound up could the bank force me to sell my home?
If your company is struggling and likely to be wound up, your home could be at risk if you have given personal guarantees of repayment to the bank.
In the traditional sense, if you own a limited company you are not automatically liable for any of the company’s debts if the business fails. This is based on the concept of limited liability.
Limited liability means the liability of the shareholders for the company’s debts is limited to the amount they have already invested into the business.
For this reason if your business can not pay its debts, your creditors cannot automatically claim anything of yours against the debts owed. This includes your house and any other property that you own.
The effect of personal guarantees
Unfortunately for many small and medium sized company owners, for the past 10-15 years, it has been extremely difficult to for a business to borrow without the directors first giving the bank a personal guarantee.
This is particularly normal for any company account overdrafts or business loans.
In effect, if you agree to a personal guarantee, this means that you are giving up your right to limited liability for that specific debt. If the company is then unable to repay the debt, the bank will chase you personally for payment.
If you do not have sufficient personal funds to pay what is owed to the bank, they will start proceedings against you to recover the debt.
Forced sale of your property
If the bank chases you for an unpaid business debt, your home will not be immediately at risk unless as part of the guarantee, the debt was secured against your property.
In these circumstances, the bank can start action to sell the property so any equity can be used to pay the debt.
If you gave a standard guarantee for a company debt, this does not mean that your home will never be at risk. Depending on the size of the debt and the amount of equity you have in your home, the bank could initiate bankruptcy proceedings against you.
If you are declared bankrupt, this could lead to the forced sale of your home.
Because of the rules surrounding limited liability, if your business fails, your home is only at risk if you have personally guaranteed payment of debts owed by your company.
If you have given personal guarantees, this means that the bank can force you to pay any outstanding debt. The implications of this can be far reaching and may well affect your home.
For this reason, if your company is failing, it is vital to get advice. It could be possible to save the business. However, if not, then you may need to consider a personal debt solution to need to protect yourself and your home.