Many years ago, when we set up a new structure for our client "Floyd", he was just a young single guy.  However, when we looked at his situation, we could see a few opportunities and risks, which we shared with him.  Floyd, being a very entrepreneurial guy agreed with our recommendations and we proceeded to set things up.

In later years, when Floyd got involved in helping out a friend, as per our recent case study Floyd's venture, we once again ensured that this new addition did not create any risk. As you may recall BigCo, now a publicly listed company was in the process of purchasing SmallCo#2 from Floyd, who by this stage was married with a family. Floyd started raising concerns about the management of BigCo and became increasingly anxious to exit the venture.  His final action was to collect just over $1M in outstanding payments and pay this over to BigCo for them to pay the final accounts, also around $1M and then to shut SmallCo#2 down for good.  

Floyd collected the final SmallCo#2 funds and sent it over to BigCo head office for them to pay the final SmallCo#2 creditors, as they were running the accounts.  You can just guess what happened BigCo, due to their own internal problems opted to use the funds to pay BigCo creditors and Floyd as the only director of SmallCo#2 found himself in the firing line, through no fault of his own.  As the Suppliers of both businesses were fundamentally the same, it was just a matter of where the liability landed. Very soon BigCo went into voluntary liquidation and pulled SmallCo#2 down with it.

Floyd was able to show evidence to protect him from being personally liable as he had done what was required of him.  However, he had signed personal guarantees for one solitary creditor and this supplier was not letting go.  We went to see an insolvency lawyer, who went through Floyd's structure and agreed that his personal assets were not at risk. The only concern was going bankrupt personally under the personal guarantee, read our update here on Signing personal guarantees. The conclusion of this saga is that Floyd was able to negotiate a payment of around 25% of the debt under the personal guarantee and paid $20K to the supplier to ensure he did not have to go personally bankrupt.

Disclaimer: Names and places have been changed to protect the privacy and confidential nature of the transactions involved.