Can I lose my home due to business debts?
If you are a director of a limited company, your home is generally protected by limited liability
Limited liability can be bypassed in specific circumstances, including where there are active personal guarantees
Overdrawn directors’ loan accounts, wrongful trading claims, and HMRC liability notices can also create personal exposure that could affect your home
Concern about losing their home is one of the most common fears raised by directors who contact us, however, the vast majority discover their homes are not at risk after speaking with us
If you are a director of a limited company, your personal finances, assets, and home, are generally protected from any debts of your company. This is because a limited company is a separate legal entity from its directors and shareholders, which means the company’s liabilities are its own and not yours personally. This protection is known as limited liability, and it is one of the fundamental benefits of incorporating as a limited company.
If your company becomes insolvent and enters formal insolvency proceedings, such as liquidation, the liquidator will sell the company’s assets and distribute the proceeds to creditors. Your personal assets, including your home, are not part of this process, provided you have acted within the law. There are, however, some important exceptions that you need to be aware of.
“Concern about losing their home is one of the most common fears directors raise when they first contact us. In the majority of cases, we’re able to reassure them that their home is protected by limited liability. But there are exceptions, and it’s important to understand what those are, because finding out you have a personal guarantee you’d forgotten about is much better done before insolvency proceedings start than after.”
— Julie Palmer, Partner, BTG Begbies Traynor
When your home could be at risk from company debts
While limited liability offers significant protection, there are specific situations where your personal assets, including your home, could be at risk due to the debts of your company:
Personal guarantees secured against your property
If you signed a personal guarantee when the company took out a loan, lease, or other finance agreement, you become personally liable for that debt if the company cannot afford to pay it. If the personal guarantee is secured against your home, the lender can pursue a forced sale to recover the amount owed. Many of the directors we speak to with personal guarantees have forgotten the exact terms of the agreement they signed, and in some cases, they cannot even remember signing the guarantee at all. Checking if a personal guarantee is in place is one of the first things we do.
Using your home as collateral for a business loan
Some directors use their home as security for business borrowing, particularly in the early stages of the company when other assets are limited and obtaining funding without security is challenging. If the company defaults on the loan, the lender can enforce their charge against your property. This is distinct from a personal guarantee as your home is directly secured to the lender.
Overdrawn directors’ loan accounts
If you have taken more money out of the company (that is not classed as income or dividends) than you have put in, your directors’ loan account will be carrying an overdrawn balance. In formal insolvency proceedings, this is treated as an asset of the company that the insolvency practitioner is legally obliged to collect. While your home cannot be directly seized to repay an overdrawn director's loan account, the courts can place a charging order on your property to recover the money owed when the property is sold or remortgaged. For more detail, see our guide to overdrawn directors’ loan accounts.
Wrongful or fraudulent trading
If you continued to trade and incur debts when you knew, or ought to have known, that the company had no reasonable prospect of avoiding formal insolvency proceedings, you can be ordered to contribute personally to the company’s assets. In serious cases, this personal liability could be enforced against your property. Fraudulent trading, which is where debts were incurred with the intention of defrauding creditors, carries even more severe consequences, including potential criminal prosecution. For more detail, see our guide to wrongful and fraudulent trading.
HMRC Personal Liability Notices and Joint and Several Liability Notices
HMRC has specific powers to make directors personally liable for unpaid PAYE, National Insurance, and VAT in certain circumstances. A Personal Liability Notice (PLN) can be issued where HMRC believes a director intentionally or recklessly failed to ensure the company paid its tax obligations. A Joint and Several Liability Notice (JSLN) can make directors jointly liable for tax debts, particularly where there is a pattern of repeated insolvencies. For more detail, see our guide to Joint and Several Liability Notices.
Charging orders following a County Court Judgment
If a creditor obtains a County Court Judgment (CCJ) against you personally, they can apply for a charging order against your property. A charging order doesn’t force an immediate sale, but it secures the debt against your home, meaning the creditor must be paid when the property is eventually sold or remortgaged. In some cases, the creditor can apply for an order for sale to force the issue.
Need help deciding what’s right for your company?
Every director’s situation is different. We’ll explain your options clearly, with no pressure and no obligation. Speak to a licensed insolvency practitioner today.
Or call 0800 056 2482 — Free Director Helpline
What we typically see
A director of a retail business contacted us in a state of considerable distress, convinced that they were about to lose their family home. The company owed approximately £140,000 to HMRC, suppliers, and a landlord, and a creditor had started threatening personal legal action. After reviewing the director’s position, we established that the company’s debts were unsecured company liabilities with no personal guarantees attached. The director had limited liability protection and therefore their personal assets were not at risk.
The one area of exposure was an overdrawn DLA of £12,000, which we helped the director address. The company entered a CVL, the debts were dealt with through the liquidation process, and the director’s home was unaffected. They told us afterwards that they had spent months unable to sleep and worrying about a scenario that, ultimately, was never going to happen.
How to protect your home if your business is in financial difficulty
- Check if you have signed a personal guarantee. If you have, gather the documents, check whether they’re secured against your property, and review the terms. If you’re not sure, ask your solicitor or an insolvency practitioner to review them.
- Understand your directors’ loan account balance. If it’s overdrawn, you’ll be required to repay it should the company enter into formal insolvency proceedings. Understanding the exact figure now gives you time to identify legitimate business expenses that could reduce the balance.
- Don’t transfer your home to someone else. Transferring property to a spouse or family member to put it beyond the reach of creditors is a transaction at undervalue and can be reversed by a court. It can also attract criminal prosecution.
- Stop withdrawing money from the company. Every withdrawal while the company is in financial difficulty increases your risk of personal liability for company debts and may constitute wrongful trading.
- Speak to a licensed insolvency practitioner. Understanding your personal position now, before insolvency proceedings begin, gives you the most options to protect your home and manage any genuine exposure.
What happens if you are a sole trader?
The protections afforded by limited liability are only applicable to directors of limited companies. If you are a sole trader, the position is fundamentally different. As a sole trader, there is no legal separation between you and your business; in essence you are the same legal entity. This means you are personally liable for all of the business’s debts, and creditors can pursue your personal assets, including your home, to recover what they are owed.
If you are a sole trader with significant debts, you may need to consider personal insolvency options such as an Individual Voluntary Arrangement (IVA) or bankruptcy depending on the situation. A licensed insolvency practitioner will be able to talk you through your options and recommend the best course of action.
How BTG Begbies Traynor can help
If you’re worried about losing your home because of your company’s debts, you should make it a priority to seek the advice of a licensed insolvency practitioner. This will help you understand your position and the options open to you.
Call your nearest BTG Begbies Traynor office to arrange a free, confidential consultation. We’ll review your personal position, explain where you stand, and help you understand exactly what is and isn’t at risk.
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