How does sequestration affect being a company director?

What happens to business owners in Scotland if they’re bankrupt?

Sequestration is the legal term used for bankruptcy in Scotland. It affects company directors in several ways, including the right to hold various types of office, and restrictions on borrowing.

You may take the decision to voluntarily enter sequestration, but sometimes a creditor can force you into bankruptcy – if you’ve provided a personal guarantee for business borrowing, for example.

A liquidator can also enforce sequestration under certain circumstances if a company is insolvent. This sometimes happens when an overdrawn Director’s Loan Account cannot be brought into line, and the liquidator pursues the director for repayment.

Sequestration involves handing over your personal assets to a Trustee. It typically lasts for 12 months, but there may be a requirement to continue contributing to your debts for four years.

Ban on holding other offices and employments

In addition to the ban on being a company director, you won’t be able to hold other offices such as Member of the Scottish Parliament (MSP), school governor or treasurer. There may also be restrictions on other employments should you seek another job whilst being sequestrated.

Some employers such as those in the legal and financial sectors, for example, don’t allow members of staff who have been made bankrupt or who are in severe financial difficulty to work for them. 

Restriction on borrowing

There are restrictions on your ability to borrow money when you’ve been made bankrupt. Essentially, you have to disclose to any lender that you’ve been sequestrated if you want to borrow more than £500.

Adverse credit rating

Notice of your sequestration will remain on your credit file for six years after you’ve been discharged. This negatively affects your ability to obtain loans and credit in the future. If you’re successful in securing lending, it’s likely to attract less favourable terms and conditions than would otherwise be the case – a higher interest rate, for example.

How long does sequestration last?

Sequestration typically lasts for 12 months, after which time you may be discharged. Depending on your personal financial situation, however, there might be a requirement to contribute towards your debts for four years.

Your sequestration will also be publicly viewable, which could have an effect on you as a former company director. All sequestrations are recorded in the Scottish Register of Insolvencies for up to three years.

This means if you’re reinstated as a company director after being discharged from bankruptcy, the register will still note the date and details of your sequestration order for this period of time.

For more information on how sequestration could affect you as a company director, please get in touch with Scotland Debt Solutions. We help people in Scotland to deal with debt in the most effective way possible, and can provide trustworthy unbiased advice. Our team offers free, same-day consultations, and works from offices around Scotland.