Ltd Company has Sole Trader Bank Account - is it liable for debts?

Ltd Company has Sole Trader Bank Account - is...

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My consulting client has a floristry business which has been making a loss for several years. I am now recommending radical turnaround or closure. The business was set up from the start as a limited company although his business bank account was set up as a sole trader version due to an oversight at the bank (this has never been changed). He now has a large overdraft on this account, an additional business loan with the same bank (under the same sole trader account name, secured on the business), owes rent to his landlord (again under the sole trader name) and owes money to a supplier. Total debts are around £40k and he has no assets. There has never been any other trading (ie there were never 2 separate companies), all trading has been conducted under the Ltd Company and the Annual Accounts state that the Company is Limited. Share Capital is £1.

If he were to cease trading, would he be legally liable for these debts? My assumption is that his trading company is limited so he would not however, will be bank have a comeback since his account is not officially for a limited company? The account name on the statements is X Flower Shop.

In the event of him ceasing trading and being unable to meet these debts, would be be forced into bankruptcy or would the creditors likely not pursue him as they know he has no assets?

Replies (5)

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Chris M
By mr. mischief
30th Dec 2011 22:22

Not sure

I am not sure.  But this is not all that unusual on the part of the banks.  I always point out the fact to clients and strongly recommend - practically insist:

1.  That they set up a bank account in the name of the limited company if they've not done so.

2.  That if it was a bank error they get this corrected.

It's normally the client at fault though.  In order to set up a limited company account, the banks around here ask to see the incorporation certificate, and share certificate of the client.  They check it out at Companies House as I've found out when the client has gone to the bank before the Co Ho website has been updated for the newly formed company.

So if I was the bank, I'd say the odds are in my favour that the limited company account was never properly applied for and hence limited liability does not apply in the case of any debts arising.

 

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David Winch
By David Winch
30th Dec 2011 22:59

See a solicitor or insolvency practitioner

I would tell your client to see a solicitor or insolvency practitioner for advice.

I expect that the client's cheques do not show the word "limited" or "ltd" on them and probably any stationery he uses does not either.

The stationery of a limited company should show the full company name and the company's registration number and country of registration.  Probably all that is missing.

So how would the bank, the landlord, and trade creditors have known they were dealing with a limited company rather than an unincorporated business?  Answer = they wouldn't.

In the circumstances I would expect your client to be personally liable for all these debts.  But, as I say, he should see a solicitor or an insolvency practitioner.

(In any event, I suspect that if the bank thought they were dealing with a limited company they would have asked the client to personally guarantee the borrowings.)

David

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Replying to Banzai:
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By lisler
06th Jan 2012 20:52

Personal Guarantee

Pragmatically it makes very little difference. If an overdraft had been granted to a micro business trading through a limited liability company the bank would probably have insisted on a personal guarantee from the director(s). In which case the guarantor would be personally liable.

A personal guarantee is often required from directors of some fairly sizable SMEs.

 

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By Darren Loring
01st Jan 2012 12:29

Personally Liable

Hi

Sorry, but I would agree that the client is probably personally liable for the bank account - the bank want their money back and are therefore unlikely to accept that the account falls within the Limited Liability of the company when it was not in the company name.

Darren

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By The Black Knight
03rd Jan 2012 13:43

Amazing

the number of times people think a ltd company is a paper accounts exercise to avoid tax.......then don't do the basic paperwork.......

Was this ever trading through a ltd company ?....and are the accounts just false accounting ?

 

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