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Asset structuring for directors to avoid insolvency risks

No one wants their company to go into liquidation. But if your company does, you want to be in the best position to minimise your personal financial risks. So, how can you do this?

Sole director companies where possible

The main person at risk when a company goes into liquidation is the company’s director. The main risks for directors include, that:

Often as a result of these risks, directors will be faced with significant claims against them if a company fails. Sometimes this can result in a director having to go bankrupt.

Given all these risks, if you can get away with having only one director, then that is what you can do. If there are a number of stakeholders in a business you can always look at having a shareholder agreement rather than having all shareholders be directors.

Directors should not own assets

A company’s director should, to the extent possible not own any material assets. This is because if there are claims against a director because of a company’s failure the director will want to make sure his or her assets are not available if they become bankrupt. It also means that if a director wants to avoid bankruptcy, they are better placed to make offers to creditors to settle their debts. Creditors are much more likely to agree to accept an offer of settlement if they can be shown a director has no capacity to pay them.

The main asset a director should not own is real property. Any property should be owned by the director’s husband or wife or should be held in a separate entity. The last thing you want to happen if your company fails is to also have to sell your family home.

If you are a company director and you do have an interest in real property, there may be transfer duty payable if you transfer the property to someone else. In these circumstances it is worth talking to a lawyer or to us to see if you should still transfer the property and if there is any way around having to pay transfer duty.

What happens if you dispose of an asset and your company fails?

If you dispose of an asset and you then go bankrupt, this will likely give rise to a claim by your bankruptcy trustee, however:

  • A bankruptcy trustee can only make a claim if the asset was transferred for less than fair value;
  • A claim can only be made for transfers to related entities if the transfer occurred within the four years before you go bankrupt or if at the time you made the transfer you were insolvent (whichever period is longer).

What you should do

If you are a company director and you have assets in your name you should seek appropriate advice about what to do. And this is something we can help with, so please contact us for a free no obligation consultation.

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