One of our bankrupts had signed personal guarantees in relation to his company’s debts. The company failed and the guarantees were called upon. He did not have the money to pay these claims and was bankrupted. This is not an uncommon situation.
What is less common is that the bankrupt and his wife had sold a property a few months before the liquidation of the company leaving them with many hundreds of thousands of dollars. He (the sole director and shareholder) poured his half of this money (and a significant portion of her half) into the failing company in those last few months believing that this would solve the company’s problems. This money made no difference and probably only delayed the inevitable by those last few months.
If the bankrupt had understood the company’s financial position or had sought the appropriate advice, he probably would not have used the money in this way. If he had put aside that money he would have had sufficient money to satisfy the guaranteed creditors – avoiding bankruptcy – and had a significant amount left over.
When directors in this situation are about to pour personal money into their failing company, directors need to ask themselves “Is it worth it?” or is the money just being poured into a financial black hole.