Company bank account - overdraft liability

[drw_trading]

Hi

I am a co-director in a ltd company. We have a business bank account, which we had an overdraft facility arranged on but after a few months cancelled it.

If the account were to go overdrawn, would we the directors be liable for the debt?

Thanks in advance

 

[Tom McClelland]

If you don't have an overdraft facility then presumably payments that would take the account into overdraft wouldn't be honoured, so the issue shouldn't arise. I suppose fines/fees could then take the account into overdraft, but unless there is a personal guarantee I doubt that there could be any comeback on the directors.

It is a slightly odd question though. Has the problem already occurred?

 

[drw_trading]

Hi Tom

Thanks for your quick response, much appreciated. And no, the problem hasn't occurred...but to explain: we have essentially fallen out over the company, are still trading but potentially there will be a buy out. We're in first year of trading so have some assets and some stock, with a low turnover. Most of our business is done at trade shows and with nothing in bank we are committed to an upcoming show...my concern was my co-director might try and keep spending unnecessry (we have enough just not silly!) and thus me be liable for half the debt (we are joint signatories, but only he has access to the online banking) or we get in the situation where money is owed but we don't have any 'cash' to pay it but a payment goes out and we end up overdrawn...

 

[fdmike]

The only way you'll be liable (over and above what you've put into the company) is if the company are continuing to trade and get credit when it is known that they are going bust, in this instance the "veil of incorporation" can be lifted and directors held personally liable for the debts.

Personally, I would call a meeting (put all this in writing) regarding your concern about the lack of bank figures and make sure its all in writing, in this instance if the company does go pot you've got it in writing saying that you were worried about the potential debts and therefore you could potentially avoid personal liability.

Regarding you initial capital to the company you could say bye to that because if the company goes bust then you'd lose that.

Hope this helps