What Happens to the Debts of a Dissolved Company?

What Happens to Debts When a Limited Company Has Been Struck Off or Dissolved?

As the director of a limited company you are afforded the protection of limited liability. This means that the company and its finances are completely separate from your own personal financial affairs. The debts of the company belong to the company.

When a limited company is dissolved, it ceases to exist as a legal entity. This therefore means that in the vast majority of circumstances, any debt the company had at the time of bein struck off, dies with the company. Therefore creditors or debt collectors are not able to chase individual company directors for repayment, nor are company directors expecting to cover the shortfall left behind by their dissolved insolvent company.

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However, there are some exceptions to this rule. If the director of a dissolved limited company provided personal guarantees for any of the company's borrowing, they will be held personally liable for repaying the money still owed.

Any personal guarantee will crystalise upon the company entering into liquidation or else being struck off or dissolved. This means the responsibility for repaying what remains of the borrowing will immediately shift to the person who signed the guarantee. Dissolving the company does not free the director of this responsibility.

What Action Can Creditors Take for Debts After a Company Has Been Dissolved?

Depending on the scale and nature of the debts left outstanding after dissolving the company, creditors may be able to apply to have your company re-instated to the register. This would resurrect the company and means creditors were able to chase for outstanding debts. 

If a company is dissolved, creditors may suspect that there were assets in the company which would have paid the debt off and may look to recover this. However, as the limited company has already been dissolved it would first need to be restored to the register of companies. This is a costly and lengthy process, however, if a creditor is looking to recover a significant sum of money and has reason to believe that the dissolved company had a high level of assets prior to its dissolution, they may well take this course of action.

It is because of instances like this where opting for a formal liquidation procedure can be much more preferable than choosing to dissolve a company. 

In the case of an outstanding creditor continuing to harass you personally, you would be able to simply direct them to the insolvency practitioner who handled your case who would be able to show that the company was closed down, its assets liquidated, and proceeds subsequently distributed in the correct manner according to the Insolvency Act 1986. When a company is placed into a formal liquidation process by an insolvency practitioner, reinstatement at a later date is much less likely to happen.