Can You Walk Away From A Company With Debts?

Fast Liquidation Fact

Can you walk away from a company with debts? You can walk away from your directorship by resigning at Companies House as a director, but you cannot walk away from the legal consequences of any misconduct while you were a director. There is no magic wand to make such misconduct disappear. If there is any, it has to be faced and dealt with.

Sprinkling in some reality, in cases where there has been director misconduct, forget waltzing off into the sunset. That is not feassible, that is fantasy.

To help directors facing this dilemma is the creditors voluntary liquidation in the Insolvency Act 1986. It is an appropriate way to deal with such an insolvent company with debts that no longer trades and for the director to be proactive.

Does Leaving Unpaid Company Debt Amount To Misconduct?

No, simply because a company has debts does not mean there has been misconduct; there has to be something more that crosses over into bad behaviour. For example, whilst it might not always be wise to trade whilst insolvent, but that is not necessarily unlawful. Yet trading whilst insolvent whilst knowing that insolvent liquidation is just around the corner could well be wrongful trading, which is misconduct.

It is, however, irresponsible to be the sole director of a company with debts and resign with a view to walking away when there is nobody else willing or able to replace you. The creditors deserve better than that. Furthermore, a company is required under Section 154 of the Companies Act 2006 to have at least one director to run it.

What Happens If You Simply Walk Away?

Limited companies are separate legal persons from their directors and shareholders. However, as a director, you have director duties even if a company is no longer trading.

If you walk away without formally closing the company (through liquidation, strike-off, or administration), the company still exists at Companies House. That means:

• You must still file annual accounts and a confirmation statement.
• If you don’t, you could be fined or even prosecuted.
• If the company owes money, creditors can still pursue it and wind it up.
• Creditors who have a personal guarantee can pursue you for unpaid company debts.
• Any liquidator appointed should then potentially pursue you for any overdrawn your director’s loan account.

Liquidation: A Recognised And Accepted Way To Close An Insolvent Company

If the company is unable to pay its debts when they fall due, then creditors voluntary liquidation is usually an appropriate and responsible way to deal with such a company when it is looking to cease trading. It involves appointing an insolvency practitioner to close the company, realise any assets, and distribute any surplus after to costs to creditors .

Directors who abandon their duties are likely to raise a red flag that may make them even more susceptible to detailed investigation and even potentially disqualified.

Strike-Off: An Alternative To Liquidation?

If your company has debts, striking it off at Companies House using the DS01 form is generally an unsuitable approach.

Whilst a much simpler and cheaper way to close down a company compared to liquidation, it is often objected to by creditors such as HMRC or any bounce back loan lender. This blocks the closure of the company and stops you from, in effect, walking away from the company as a director.