Business Bankruptcy

This page provides an overview of how a business bankruptcy can be different to a personal bankruptcy. It describes the ways in which it can affect you both as a business owner and in respect of the bankruptcy itself.

Please note that a different level of understanding is required for a business bankruptcy. Please only seek help from someone with a good working knowledge.

What will happen to my business?

If you are a sole trader then your business will either be shut down or it will be allowed to continue to trade. The reality is that closure is highly likely. What happens to your business largely depends on a number of factors including:

• Size
• Profitability
• Asset base
• Income generation

If your business is of a significant size then a trustee in bankruptcy will be appointed. The trustee has a duty to do what is best for the bankruptcy estate. If this is selling all the business assets then that is what will happen.

If you are a partner in a partnership then you should realise that matters are more complex. The partnership will automatically dissolve upon the making of a bankruptcy order against one of the partners unless a partnership deed provides for otherwise. This may then result in the trustee in bankruptcy bring proceedings to realise the bankrupt's interest in the partnership.

What additional dangers are there in a business bankruptcy?

There are a number of additional consequences in a business bankruptcy that you will need to consider. These include:

• Possibly more attention from the Official Receiver or the trustee in bankruptcy.
• Obligation to provide three years worth of accounts. This often causes a problem for people and can lead to a bankruptcy restrictions order.
• Greater risk of having your bankruptcy restrictions prolonged beyond bankruptcy due to the consequences associated with tax debt and trading whilst insolvent
• Being left without the ability to earn. If your lifestyle has been financed through your business then the closure of this business will leave you without any means of paying your bills.
• If you stay in business, a damaged reputation
• Suppliers unwilling to grant you credit
• Difficulty in getting a business bank account, you may not be able to get one
• Unable to get certain licenses
• Barred from certain associations
• Although discharge from bankruptcy will alleviate some of the above consequences, many will remain for some time after.

What if you are a company director

If you are a company director then you will be prohibited from being a company director without the leave of the court whilst you are bankrupt. This will clearly cause you a problem if you intended on starting back in business through a limited company immediately following the bankruptcy order.

Many people think that it is possible just to make a relative or friend the director whilst they actually run a company. There are a number of problems with this. The restrictions of bankruptcy not only prevent you from being a company director, they also prevent you from acting as a company director or being concerned in its promotion, management or formation. Breaking these restrictions could place you in contempt of court as well as the disqualification of the director supporting you.

Making yourself bankrupt

If you run a business as a sole trader then you make yourself bankrupt in the usual way. The business bankruptcy forms are the same - bankruptcy forms.