If you are the director of a company facing the prospect of liquidation, chances are your attention may not be immediately focused on your personal finances. Once all is said and done however, whatever the final position of your business, eventually you will have to take stock of your individual position.
One way a director can be impacted by the liquidation process involves their credit history. While the process is different from a personal bankruptcy, which will remain on your credit report for up to five years, as a company director you are able to separate yourself from the organisation to a certain extent.
According to Smart Company, while credit reporting agencies are obligated to keep a record of the directors of any businesses which enter the liquidation process, for your personal financial affairs it’s unlikely to be too much of a concern. When you are applying for a credit card or a hire purchase agreement, for example, the lender may not feel the need to investigate your business history, and your directorship of a liquidated company may not even be noticed.
The danger of insolvent trading
Where a director might find themselves in a little more trouble is if they allow their company to continue trading while insolvent and incur further debts. This practice can carry some very serious consequences, not least of which is the director becoming liable for those debts.
According to ASIC, the penalties for insolvent trading can include pecuniary penalties of up to $200,000, and for serious breaches where dishonest practices are found to be a factor, criminal charges and imprisonment for up to five years is a possibility. Clearly, you can see the responsibility of directors to meticulously follow the laws around liquidation is a serious matter.
In most cases the situation will not become quite so distressing, but running the risk of becoming liable for your company’s debts also puts you at risk of personal bankruptcy, which, as mentioned, will be noted on your credit rating.
Reaching out for help
Being in charge of a business which is experiencing financial difficulty can be incredibly stressful if you’re not fully in control of the situation, but help is available for those struggling with the process. Getting in touch with Corporate Lifeline at the first sign of trouble can significantly ease the process, and help to minimise the impact on your personal finances.