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120 posts

Master Geek

Topic # 62459 7-Jun-2010 21:06
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Hi all,

I'm just wondering if anyone knows how protected a director or shareholder of a limited liability company is if the company is liquidated or being chased for debt - I cant find the answer anywhere else.

Specifically - If a company has an unpaid bill or debt, can the 'default' in payment against the company be recorded against an individual shareholder or director or does it go against the companies record.
Likewise, can a debt collection agency repossess items etc from the director shareholder and so on.

Thanks for your help!

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  Reply # 339164 7-Jun-2010 21:34
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Reasonably well - this is the whole point of a limited liability company. But it's certainly doesn't protect them totally.

It's an issue you're really going to need to seek legal advice on.

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  Reply # 339167 7-Jun-2010 21:49
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Yes seek some legal advice, while the nature of the limited liability company is to protect the directors/owners there are some ways that you could be liable eg. if you've signed a personal guarantee with the company chasing the debt.

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  Reply # 339170 7-Jun-2010 21:57
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Can you clarify - are you chasing someone over a debt, or are you being chased?

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  Reply # 339191 7-Jun-2010 23:23
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the principle of limited liability means that the maximum amount a shareholder can be liable for in the event of a company going under is the amount he has already paid into the company (i.e. the share capital). IOW, once the company has sold off it's assets to pay for as much debt as it can, any debt remaining is wiped.

However, for the vast majority of small businesses many credit arrangements usually involve the owner signing a personal guarantee - meaning that if the company cannot pay, then they are personally liable for the debt.

They might then declare personal bankruptcy, wiping the personal debt, but also involving some pretty strict penatlies to them (including a very bad credit rating, being forced to sell off ALL their assets topay off as much debt as possible, restrictions on starting a new company etc).

Directors are never liable for the debt of the company, except possibly in very rare cases of extreme negligence. (obviously in many small companies the owner is also a director, so the point is moot in those cases).

If you want professional advice (whether you are the debtor or the creditor) I would seriously suggest paying to see an accountant and/or lawyer for an hour.  Advice from anonymous internet peeps is worth about what you pay for it i.e. nothing.

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