Legal restrictions during bankruptcy
A person who is currently subject to a bankruptcy order cannot legally act as a director of a company without the court's permission. If a bankrupt individual is acting as a director, the company is in breach of insolvency law, which creates a very serious problem for any lender considering the application.
If your company has a director who has recently received a bankruptcy order, the first step is to take legal advice on whether they should resign their directorship and what implications this has for the business. Most lenders will check the Insolvency Register, which lists current bankruptcies and IVAs, as part of their due diligence.
Finance options where a director is bankrupt
If the bankrupt director is not a shareholder or guarantor and their role is non-operational, some lenders may proceed on the basis that the financial risk is not materially affected. However, this is the exception rather than the rule, and the director's bankruptcy will be thoroughly scrutinised.
Where a personal guarantee is required (typically for facilities above £250,000), the bankrupt director cannot give a meaningful guarantee as they have no assets to pledge. Another director or shareholder with a clean personal credit record would need to provide the guarantee instead.
Asset-based lending (invoice finance, asset finance) may be accessible because the security is the asset or the book debts rather than a personal guarantee. Revenue-based finance and merchant cash advances also typically rely less on personal director credit.
- Bankrupt directors cannot legally act as directors without court permission
- Lenders check the Insolvency Register and will identify an active bankruptcy
- Personal guarantees from bankrupt directors are of no value to lenders
- Asset-backed products may be available regardless of director bankruptcy
- Non-bankrupt co-directors or shareholders may be able to support the application
Frequently Asked Questions
How long does a bankruptcy order last?
In most cases a bankruptcy order is automatically discharged after 12 months, though the financial restrictions (including restrictions on acting as a director) may persist longer where a Bankruptcy Restrictions Order (BRO) has been issued by the court.
Can a discharged bankrupt be a company director?
Yes. Once a bankruptcy is discharged (typically after 12 months), there is no legal bar to acting as a director, unless a separate Disqualification Order has been made. However, the bankruptcy will remain on the Insolvency Register for 3 months after discharge and on personal credit files for 6 years.
Can my company still trade if one director is bankrupt?
The bankrupt director must either resign or obtain court permission to continue acting as a director. The company itself can continue to trade with its other directors managing it. Legal advice should be obtained immediately.