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One of the most common questions we hear from directors when
discussing the future of their company is:
"If my company goes into liquidation, can the liquidator take
my house?"
It's an understandable concern. For many directors, their family home is their most valuable asset. The short answer is a liquidator cannot simply take your house. However, under certain circumstances, your personal assets - including your home - can be at risk. Let's break down how this happens and avoid the pitfalls.
What liquidators can and cannot do
When a company enters liquidation, the liquidator's primary role is to realise the company's assets, distribute the proceeds to creditors, report on their investigations into the company's affairs and any prospects for recovery of uncommercial transactions and potential trading while insolvent. Their powers are extensive under the Corporations Act 2001, but they relate to company property - not your personal property.
So, your home is safe - unless the liquidator establishes grounds for personal liability against you as a director. This is where things get complicated.
When directors can be personally liable
Directors enjoy limited liability, but that protection is not absolute. Under Australian law, directors can be personally liable in several scenarios:
- Director loan accounts If you've borrowed money from the company (known as a debit loan account), the liquidator can demand repayment. Failure to repay can lead to legal action.
- Unfair or uncommercial transactions If you purchased company assets for less than market value or authorised transactions that disadvantaged creditors, the liquidator can claw these back.
- Trading while insolvent Directors have a statutory duty to prevent insolvent trading. If the company incurred debts whilst insolvent and you failed to act, you can be personally liable for those debts.
These claims may result in court proceedings. If the liquidator obtains a judgment against you and you cannot pay, they may apply to bankrupt you or take other recovery action.
Limited liability will also not protect you in other circumstances. For instance, personal guarantees provided to suppliers, landlords or lenders will not be resolved via a liquidation.
How bankruptcy puts your home at risk
If you are declared bankrupt, control of your assets - including your interest in the family home - passes to a bankruptcy trustee. The trustee can sell the property to satisfy creditors, subject to certain exemptions and equity considerations.
In short, the liquidator cannot take your house directly, but bankruptcy following a successful claim can lead to its sale.
Key takeaways
- Liquidators deal with company assets, not personal assets - unless they prove personal liability.
- Common triggers for personal liability include director loans, undervalued or uncommercial transactions, and insolvent trading.
- Bankruptcy is the mechanism through which your home can be sold - not liquidation itself.
If your company is in financial distress, seek professional advice early. Acting quickly can help you avoid personal exposure and protect your assets. At Worrells, we specialise in guiding directors through these complex situations with clarity and care.
Don't wait until it's too late - contact Worrells today for expert insolvency advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
