A great concern for directors are their own status after Liquidation. Will they be held personally liable for the debt of the company; will they be blacklisted; will they be able to own a business again. These are the most popular questions we get asked. In fact, the impact of Liquidation on Directors are not that big. In fact! A Director is obliged to Liquidate a company that cannot pay its debt, so Liquidation actually averts personal liability of a Director.
If you are too scared to Liquidate a struggling company because you fear Director's liability, talk to us as soon a possible so that we explain to you why it is important to Liquidate to AVOID personal liability.
Is a Director Blacklisted?
A director is not blacklisted when a company is liquidated. A company is a separate legal entity. The director is an employee of the company. When the company is liquidated there is no legal reason why the director will be blacklisted, because it is the company that is liquidated and not the director.
Does a Director lose Personal Assets
Since a director is not personally liable for the debt of a company, the director’s personal assets play no role in a liquidation. The only time the director’s personal assets are in danger of being attached is if the director signed personal surety for the debt of the company. Liquidation does not cancel sureties and the director should settle the debt he signed sureties for after liquidation. If the debt that sureties were signed for is not paid, the director’s assets can be attached. However the attachment will then not be because of the liquidation, but because of sureties that were called up. A director can also personally sequestrated to get rid of personal debt and any sureties that were signed. Sequestration is for individuals, businesses liquidated. Once sequestrate, the debt of the individual is written off. This includes sureties.
Does a Director Pay the Debt of the Company?
In terms of Section 22 of the Companies Act, a director CAN (not will or shall, but can) be held personally liable for the debt of a company if it is found that the director traded recklessly. It is therefore critical that the company is liquidated as soon as it is unable to pay its debt or as soon as the liabilities exceed the assets. Do not trade too long, rather liquidate as soon as is possible.
Conclusion
A director is not personally liable for the debt of a company and liquidation will write the debt off. It is only when the director signed personal surety for the debt of the company that the director will be personally liable for the debt. But not because of the Liquidation but because of the sureties.