Can Directors Lose Their Home if Their Company Goes Bust?

It is the fear that keeps directors awake: if the company fails, can they come for my house? For most company debts the answer is no, because the company, not you, owes them. But there are specific routes by which a company failure reaches your personal assets, and the biggest of them is one many directors set up themselves years earlier and forget.

Why your assets are usually protected

A limited company is a separate legal person. Its debts are its own, and if it cannot pay, creditors pursue the company. That principle, from Salomon v Salomon & Co Ltd [1897] AC 22, is exactly why people incorporate. Ordinary trade debts, unpaid invoices and most commercial liabilities stop at the company.

The routes that reach personal assets

• Personal guarantees. This is the most common route in practice. If you signed a personal guarantee for a business overdraft, a commercial lease, a supplier credit line or invoice finance, the creditor can enforce it against you personally when the company cannot pay. Where that guarantee is secured against your home, your home is directly exposed. Directors who signed guarantees in the early years and never reviewed them are often unaware how much is at stake.
• Overdrawn director's loan account. If you have drawn more from the company than you have put in, in insolvency that overdrawn balance is a company asset. The liquidator will demand repayment from you personally.
• Unlawful dividends. Dividends can only be paid from distributable profits. If they were declared without sufficient profits, you can be required to repay them personally.
• Claims for how the company was run. Wrongful trading, misfeasance and HMRC Personal Liability Notices can all produce money judgments against you personally, and those judgments can be enforced against your assets.

What to do next

If you have given personal guarantees, or your loan account is overdrawn, and the company is under strain, get advice before anything crystallises. There are often steps that reduce exposure while there is still time. Bonsai Law advises directors and owner-managers on personal liability and asset risk. Start the conversation. See also what directors can be personally liable for and how to protect yourself as a director.