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What Happens to a Director of a Limited Partnership After Liquidation?

If your business is in the process of liquidation, it can be an incredibly scary time. Suddenly, the future of your business is out of your hands and there are strangers flipping through your finances. For some, it feels like a relief, while for others it feels like a crushing failure. It’s a scenario that the myriad fictions surrounding the liquidation have never helped. So in this guide, we’ll dispel some of those myths and tell you what really happens to a director when their limited partnership is liquidated.

First of all, it is key to note that no: liquidation does not mean that you are prohibited from becoming a director of another company. It’s a common misunderstanding, but it shows the level of ignorance that hovers over the issue of insolvency.

Liquidating a limited liability company means that (as the name implies), the directors face little risk if the company fails, as long as they have acted correctly and acted on time. Failure to do so is defined by not acting on time, acting responsibly, keeping accurate books and records, or continuing to take credit despite knowing that your business would not be able to repay you. If that’s the case, you would personally risk financial loss, or perhaps worse.

These actions are generally described as ‘illicit trade’, and if a reputable settlement expert can prove that there was illicit trade, you are personally at risk. Personal liability can be held for company debts and you could be forced to pay them back.

Otherwise, your risks are extremely limited. They can be further limited by going into voluntary liquidation as soon as possible, if it is clear that your business has no future. There are many companies that will test your business potential if you can’t see it, but if those tests come back negative, liquidate as soon as possible.

If the operating room finds that directors have knowingly negotiated while insolvent, failed to act, took credit without a reasonable prospect of paying those debts, or failed to present bills, then would you face personal action? It is known as “lifting the veil of incorporation” and if it happens, you could be liable for VAT, PAYE and creditors’ money from the time you should have been aware that the company had no chance of surviving the problems what’s wrong with it.

However, these actions are rare because the vast majority of company directors are honest and trustworthy entrepreneurs. If you have any doubts about this, it is always best to contact a local specialist.

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