Personal responsibility for business debt

You may think that business debts are distinct from those which individuals incur, but the line between personal and business liabilities is not as clear cut as it may seem. 

As a sole trader, an unincorporated partnership or if you have personally guaranteed the debts of a limited company the liabilities of that business ultimately fall on your shoulders.  

If the business has cashflow issues, underperforms or ends up in formal insolvency, creditors may be able to pursue their debts against the individuals who traded that business. 

If your business fails, then your personal income stream could disappear leaving you struggling to meet your household expenditure. 

A struggling business has implications not only for business owners but also employees.  In these unprecedented times many are facing reduced income via the furlough scheme and there will be an inevitable rise in redundancies.  

The BBC reports that in September 1,734 employers notified the government of plans to cut 20 plus jobs.  Many employers will have hoped to avoid redundancies and bring employees off furlough but the ever worsening economic climate means this just isn’t viable.

The line between personal and business liabilities is not as clear cut as it may seem.

You may be grappling with debt as a business owner or as an employee of a struggling business.  Whatever the circumstances there are options open to you, you can consider both formal and informal solutions including negotiations with individual creditors, individual voluntary arrangements and bankruptcy.  

None of these steps is to be taken lightly and early advice is key. You may find that you are being threatened with insolvency action and again it is crucial to understand what your position is and what your options are.

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