The run-up to liquidating a limited company can be taxing, from financial uncertainty, creditor pressure and threats of legal action, navigating a business in distress is a challenge not for the fainthearted.
As the director of a limited company, it’s your responsibility to act in the best interests of creditors. If continuing to operate could put the financial position of creditors at risk, you must immediately cease trading and seek professional advice from a licensed insolvency practitioner. This will shape the future of your business, if there’s no prospect of recovery, entering the voluntary liquidation process, such as a Creditors’ Voluntary Liquidation (CVL) may be inevitable.
This will mark a turning point for personal finances as closing your company will reduce an income source. If your limited company is your primary source of income, you’ll need to devise a plan of action to maintain your finances.
Sharon McDougall, a personal debt advisor at Scotland Debt Solutions, explains what help is available with your personal finances when liquidating a limited company.
Help with personal finances upon liquidating a limited company
Liquidating a limited company will have a direct impact on your personal finances, so this is an ideal time to take stock of your finances and consider any entitlements that you may be eligible for.
Here are some of the ways you can protect your financial position after liquidating your limited company:
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- Revise your personal budgets to factor in any changes to your income
- If you have a reserves pot, turn to this for support throughout your transition
- If you have any personal guarantees, maintain payments to protect your personal assets from being repossessed
- Claim statutory payments, such as redundancy pay, notice pay, holiday pay and unpaid wages, if eligible
There’s often a misconception that company directors are not eligible for statutory payments. We explain what statutory payments limited company directors are entitled to which can be crucial for your personal finances.
What statutory payments are limited company directors entitled to?
As the company director, you are employed by your limited company, and therefore, classed as an employee. As such, you may be entitled to redundancy pay if you liquidate your limited company as it is insolvent. Redundancy pay is paid from the National Insurance Fund by the Redundancy Payments Service, this pot is earmarked for circumstances such as these. You may also claim notice pay, holiday pay and/or unpaid wages, if eligible.
To qualify for director redundancy, you must meet the following criteria:
- Worked under an employment contract for at least two years
- Worked 16 hours per week, as a minimum
- Owed money by the company
The amount of redundancy pay you can claim will be determined by your length of service, the salary taken during this time and your age at the time of the redundancy.
An unexpected payment at this stage can provide you with a much-needed cash injection to regain stability and look to the future.