Company Directors And Bankruptcy

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035S – BAS

Director applying for personal bankruptcy, how does it affect me?

When applying for personal bankruptcy as a Director there are some specific things to be aware of.

Once application to the court is granted, the bankrupt – you – is immediately placed under a number of “Bankruptcy Restrictions” (usually lifted when discharged from bankruptcy).

These set out the basic terms of your bankruptcy, under which the following is a criminal offence:

Being concerned (directly or indirectly) in promoting, forming or managing a limited company, or acting as a company director, without the court’s permission, whether formally appointed as a director or not.

Clearly, then, there is no way that you could continue as a Director if the court were to agree to grant your personal bankruptcy order.

You would, though, be allowed to continue as self-employed, or trade in a partnership, subject to restrictions. You’d be responsible for: keeping accounting records and dealing with the tax and VAT requirements.

If your business were to be carried on in a different name to that which you were made bankrupt by the courts, it’s your responsibility to inform everyone you do business with the name in which you were originally made bankrupt.

Once discharged from bankruptcy (normally after 12 months) all Restrictions are lifted. With specific relevance to a Director is the fact that you may again act as a director of a limited company and/or be involved in its management.

However, this would not be the case if subjected to a “Bankruptcy Restrictions Order” (BRO):

During the course of any bankruptcy, if the Official Receiver (a court official who oversees your case and deals with your debts) can reimpose the original Bankruptcy Restrictions, for a set period of between two and 15 years, if they believe the bankrupt to have been uncooperative or dishonest at any stage. Similarly, breaking any of the original Restrictions – a criminal offence – would bring the same action.

The main statutory consequences of a BRO for a Director is clearly set out in the Company Directors Disqualification Act 1986, s. 11(1):

It is an offence for a person to act as a director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without leave of the court at a time when … (b) a bankruptcy restrictions order… is in force in respect of him.

Additionally, the office of Director is automatically vacated if the Director in question is subject to a BRO.

Furthermore, if found to be taking part in a company’s management without the court’s permission, you’d be personally responsible for any company debts that come about during your time as a manager.

Of course, all this applies only if first issued a BRO. It’s therefore very prudent to behave honestly and cooperate fully at all times when bankrupt.

Bankruptcy is neither an easy solution nor a quick fix and will have far-reaching consequences. For example, according to the government, “less than 5% of bankrupts had started trading, obtained credit, traded under a name other than the one used in bankruptcy or become a company director,” since being discharged.

However, one of the major benefits to being successfully discharged from a well-conducted bankruptcy is emotional. Furthermore, the Insolvency Register keeps no details of disqualified directors (should you fall foul of a BRO).