If you are considering entering bankruptcy, it’s important that you take professional advice before doing so, as going bankrupt can have serious effects on you and your business depending on your individual circumstances.
Any businesses concerned about cash flow issues should speak to their financing provider as soon as possible to discuss what products and support may be available. These options may vary depending on your circumstances, but could include applying for or extending an overdraft, a working capital loan or other sources of finance such as invoice finance.
Can I run a business while bankrupt?
When you are subject to a bankruptcy order, there will be restrictions placed on you until you are discharged from bankruptcy. These restrictions depend on whether you’re a sole trader or have a limited company.
As an undischarged bankrupt (when your bankruptcy is still ongoing), you are not allowed to act as a company director. If you’re the sole director, personal bankruptcy can result in your company being liquidated.
Bankruptcy doesn’t have the same impact on sole traders. You can continue trading after you’ve declared yourself bankrupt, as long as you do so in your own name, or the name you traded under when you were declared bankrupt.
Whether you are a company director or sole trader, you cannot obtain credit of more than £500 from anyone without telling that person that you are an undischarged bankrupt.
Why would you be refused a business bank account?
Providers will typically undertake a credit history check when opening a current account so if you have county court judgements registered, defaulted on loans or have filed for bankruptcy providers your application is more likely to be declined.
When you apply for an account, banks in the UK are legally required to carry out anti-money laundering (AML) and know your customer (KYC) checks to prevent criminals from using financial products or services to store and move around their money. KYC information is used to help banks adhere to the legal requirements that are in place across the globe.
These regulations require banks to perform what are known as “customer due diligence” (CDD) measures such as identifying and verifying your identity and, where applicable, the identity of any beneficial owners of the business. Lenders will also seek information on the nature of the business and where your money comes from.
For most businesses that are not subject to bankruptcy restrictions, applications for a business current account usually are successful. To help businesses to understand what information is required by business current account providers, UK Finance has worked with UK business banking account providers to establish a common set of basic information that they will need from you.
The information is included in an online guide hosted by UK Finance available here.
Can I open a bank account if I owe another bank money?
You may be able to have a bank account if your debt with another lender is being serviced in accordance with the lending agreement and not in default. However, obtaining a new bank account if your previous bank closed your account due to unpaid loans or overdrafts is likely to be difficult.
Can I open a business account after bankruptcy?
An undischarged bankrupt is not prohibited by law from operating a bank account but there are restrictions on obtaining credit. However, banks will make commercial judgements when deciding whether to offer business accounts for undischarged bankrupts. A basic bank account may be the only type of account available.
Which banks accept bankrupts?
There are some providers which offer business bank accounts without the need to undertake a credit check. These often offer similar services to regular business bank accounts; however they do not have an overdraft facility.
As a personal customer, you can apply for a basic bank account even if you are an undischarged bankrupt or have an adverse credit history such as County Court Judgements (CCJs) or you have insolvency measure in place such as a Debt Management Plan (DMP), Individual Voluntary Arrangement (IVA), or Debt Relief Order (DRO). The largest banks in the UK offer these fee-free basic bank accounts, including Barclays, Santander, NatWest (including Royal Bank of Scotland), HSBC, Nationwide, Co-operative Bank, Lloyds (including Halifax and Bank of Scotland), TSB and Virgin Money (including Clydesdale and Yorkshire Bank). There are also new challenger banks and non-banks that offer online accounts that you may wish to consider.
MoneyHelper has useful information on how to open a basic bank account. Its website has links to several banks’ basic bank account information pages.
Mike Conroy is director, commercial finance at UK Finance