Entering into bankruptcy will place a number of restrictions on your ability to run your business. Before considering this an option you should take time to weigh up the full pros and cons. Depending on the type of company you run it will affect you in different ways, which we explain in more detail below.
Will bankruptcy have an impact on my business?
How bankruptcy will affect your business will depend on the type of company you run. As we explain below, if you own a limited company there will be some restrictions that will limit your involvement, while self-employed sole traders may be able to continue trading post-bankruptcy.
Are company directors affected by bankruptcy?
Company directors who have been declared bankrupt will have a number of issues to contend with. If you enter into undischarged bankruptcy you will be unable to serve as a company director for the duration of your bankruptcy (which is usually 12 months). There are some circumstances where this can be extended for up to 15 years, but this is usually only in severe cases where the person going bankrupt has been found to have acted dishonestly or are to blame for their debts. This would be instructed via a Bankruptcy Restriction Order (BRO).
In addition to being barred from acting as a company director during this period, you will also have to seek permission from the court in order to manage or promote your existing business, or any other limited company. Sole directors who experience personal bankruptcy may have the business liquated, depending on the review of the official receiver in charge of their case.
Is there anything I can do to minimise the impact on my business?
You do have the option to appoint a new company director to the business who can oversee things while you are bankrupt. This will have to be completed before bankruptcy proceedings start. Alternatively, can also resign from your directorship, or transfer responsibilities to a fellow director working in the business.
Does personal bankruptcy have an impact on sole traders?
If you have entered bankruptcy and you are a sole trader you may be able to continue trading. This will depend on your individual circumstances as the official receiver may decide to sell the business after they have assessed your financial situation.
The actual tools you use to carry out your job are unlikely to be sold during this process, as long as they are not of excessive value. This also applies to any vehicles that are essential to your work. This is different to any vehicles that are used to drive you to and from work, with anything worth more than £1,000 potentially in a position to be sold off.
If the business is in possession of any physical stock this could be considered an asset and sold by the official receiver. Employees are likely to be dismissed from the business with any business records also handed over to the receiver.
How will bankruptcy affect me running my business?
As you cannot be a company director while bankrupt and you are not allowed to manage or promote any business during this same period, you will not be able to run the company before being discharged.
Are there any alternatives to bankruptcy?
Bankruptcy is viewed as the last resort by many people due to the financial constraints you will experience. Creditors would also prefer you not to enter bankruptcy as it significantly reduces the chances of them receiving the full amount of money back on the debt.
There are two alternatives to bankruptcy that you may want to consider:
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Agreement made between you and your creditors to repay an agreed amount each month. This is legally binding and could be negotiated while still serving as a company director.
Debt Management Plan
Debt Management Plan is an agreement made via a third party who will help to negotiate a repayment plan with your creditors at a rate you can afford each month.