Can you run a company if you go bankrupt
- 07 Dec 2021
You can’t be a company director if you go bankrupt. However the restriction only lasts 1 year. After 12 months you can be re-appointed if you wish.
Included in this article:
- Can you continue to be a company director while bankrupt?
- Are company debts written off?
- Does your company have to close?
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Can you continue to be a company director while bankrupt?
If you go bankrupt, you are not allowed to act as a company director. You will have to resign your position. This must be done formally using the Companies House form TM01 – termination of the appointment of a director.
There is no charge for this process. Your termination form can be submitted either by post or using the Companies House on-line portal.
You can continue to work in the business as an employee. But, you can’t act act in the manor of a director.
For small businesses this is often a fine line. However importantly you must not pass yourself off as a director or complete the roles which would otherwise be expected to be undertaken by a director. In particular this would include taking on new credit on behalf of the company.
You are only restricted from being a company director for the time you are bankrupt. For the vast majority of people this is just 1 year. After you are discharged, you can be re-appointed if you wish.
Are company debts written off?
A company director is a separate legal entity to the company itself. As such, if the company has debts in its own name, these are not written off if you go bankrupt. The company is still liable. It is only debts in your name that are included.
That said, bankruptcy does protect you from any personal guarantees you have signed. If your company took a business loan in its name, typically from the likes of Funding Circle, Capital on Tap or Iwoca, as the company director, you are likely to have signed a guarantee. This means you have to pay the debt personally if the company can’t. But once you go bankrupt, the lenders can no longer enforce these guarantees.
If you subsequently decide to liquidate your company or it is wound up, you don’t have to worry about any creditors or even HMRC chasing you personally for the debt at any time in the future. If they try to do so, your bankruptcy acts as an umbrella and protects you.
An director’s loan account is included in bankruptcy. If you owe your company money, you will not have to pay it if the business is subsequently closed.
Does your company have to close?
Once you are bankrupt, your company does not have to close. However, if you are the sole director, someone else will have to be appointed to replace you. As long as this happens, the business can continue trading.
You can remain involved with the company. You can work for it as an employee, manage customers and undertake the work needed to deliver what it sells. But you can’t pass yourself off as a director.
Once your bankruptcy is over, you can become a director again if you wish.
If you don’t know anyone who can replace you as a director of your company, or you no longer want to run the business, you can decide to close it. This could be through a formal liquidation or simpler dissolution. You can continue to run your business as a sole trader if you want.
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