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Can I run a business while bankrupt?

Whether you're a business owner or just an individual, bankruptcy is never something that should be taken lightly. But if you are running a business then you have people that rely on you, and the decision affects them as well as yourself. From employees to suppliers, bankruptcy can be far reaching.

But with running a business being the a main form of employment in some areas of the country, can you still run a business while being bankrupt?

What is Bankruptcy?

There are two ways in which you can go bankrupt - either:

  1. You declare yourself bankrupt because you can no longer pay your debtors;
  2. Or a company can apply to make you bankrupt.
    • If this happens you have no say over what is happening, but you have to owe at least £5,000 before any action can be taken.

However, bankruptcy isn't the only option and will have serious consequences.

So why should you consider going bankrupt?

  • It can relieve the pressure on you because creditors are no longer contacting you about a debt.
  • You get to keep some things such as household goods and a living allowance.
  • There are no longer any threats of court action.
  • Any money you owe is written off.

Are there disadvantages of become bankrupt?

  • You could be made to pay towards the debt for three years, depending on your income.
  • It's much harder to get credit.
  • Your credit rating will be affected for six years.
  • You may have to sell your home to clear your debt.
    • Some of your possessions may also be sold for the same reason, these will be things like your car and any luxury items.
  • Some jobs will not employ people who are bankrupt.
  • Your bankruptcy will be made public
    • You can ask for certain details to be omitted if you are afraid of personal repercussions.

Bankruptcy and Owning a Business

First things first, if you declare yourself bankrupt, you cannot be a company director of our own company or any others while the bankruptcy is undischarged. You are legally prohibited from managing, forming or promoting a limited company without first obtaining permission from a court.

What if you're already a company director for your own company?

This then depends on your individual circumstances and the nature of the company. For example, if you are the sole director, then the company will be liquidated and the Official Receiver takes over. Or the courts may appoint an insolvency practitioner.

There is the option to appoint another director to your company before declaring yourself bankrupt. This will avoid the company being wound up. However, you can have nothing to do with running the company and cannot be a director once you are bankrupt.

If the company already has multiple directors, then you should just resign by using the Form TM01, available from Companies House.

If there's a director within the company who has declared bankruptcy but does not inform any of the other directors, there are steps you can take to remove them from the position. If they have less than 50% of the voting rights, they can just be removed via a motion from the other directors. If they have more than 50% then the situation needs to go to the Official Receiver for them to take any relevant legal action.

You are able to remain self-employed as a sole trader once declared bankrupt so long as you trade under your own name, or the name you used when declaring the bankruptcy.

Bankruptcy Alternatives

One commonly used alternative used is an Individual Voluntary Arrangement (IVA). This is a formal alternative where borrowers make a binding payment agreement with their creditors. This may involve paying a reduced monthly repayment over a fixed period of time in order to satisfy the debt, or it can mean re-negotiating and agreeing on a lower debt settlement figure.

This system has a greater flexibility than bankruptcy and allows a person to keep running their own company.

You can also try to negotiate with your creditors yourself. Many creditors will be willing to come to an arrangement for extended payment terms rather than see you go bankrupt and risk not having their money returned. This is a good reason to speak to your creditors as soon as you realise that you are running into financial difficulty.


When you're running your own company, bankruptcy is the last thing that you want to happen as it can lead to you resigning from your position. However, there are steps you can take to prevent it and alternative routes you can go down. Hopefully this post has made it a bit clearer as to what you can and cannot do once bankrupt, but we recommend that you seek legal advice before deciding on any course of action.

This post is for guidance only. All information is correct at the time of publishing and may be subject to change. We recommend that you seek legal advice before taking any action.

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