Re: FN-FORUM: forming a ltd

date posted 16th August 2007 16:53

Mike A wrote:
> > Hasn't a new law been passed recently, whereby Directors of Ltd companies
> > will be responsible for paying companies debts?
> >
> > The reason for asking, is my bank asked me to sign a form, whereby I am
> > personally responsible.
>
> That has been the case for a very long time. The bank issue is different -
> they want their money reagardless! The legal parlance: "a first charge over
> the company" - so they get their money after the tax and VAT man (if there's
> anything left). If not, the bank can use your house or other convertible
> assets.
>

As a ltd co director, banks often require you to personally indemnify
them against losses when providing you with credit facilities such as
cards and overdrafts. I have neither and so was not asked to sign
anything to that effect. The new companies act (2006) is coming into
effect this year and next, in various stages, actually making it
easier to form and manage small companies, including such things as no
longer requiring a co secretary, but it does not redefine director's
financial liability so far as I am aware.

The nature of a "limited" company is just that, your liability is
limited to that of the amount of unpaid share capital that you owe the
company. The emphasis is then on banks and creditors to only allow you
such credit as they feel secure in risking. In the case of insolvency,
however, an official investigation may find a director to have acted
illegally, or not in the company's best interests, and in such a case
may declare that director to be liable for the company's debts.

So long as you follow company law, do not act illegally and declare
insolvent as soon as you suspect that the company has no way to
continue to trade solvently, then you should not be held liable beyond
any personal commitments you have made. I went through this process
myself a few years back and whilst nerve-wracking enough following the
collapse of your company, I was not held liable for the debts.

I've read up on the new laws a little and see nothing to have changed
this, but I stand ready to be corrected.

Adam