Becoming Director With Bad Credit

Warn14

Hi All 

I have been offered to become a named director in a business that I am a manager in. The business has operated for 19 years as a successful Ltd company .

My personal finances are poor with several defaults all currently ending repaid monthly. 

Will my poor credit have a negative impact on the business if I am a name director or if the business needs future funding or financing in the future. 

Thanks 

SeanG79

Potentially - an example of where it may impact is a new bank credit facility, the bank may want to perform a credit check on all directors. 

Once the defaults are settled, it should matter less but no one can say for sure.

MattMattMattUK

Adding to Sean's comments above it will also depend what the company's current financial situation is, how many other directors there will be, if you will have access to and ability to authorise financial transactions on your own etc. 

I will also add, is the business aware of your poor credit history, most companies would not want to someone as a director who had outstanding defaults, CCJs etc. but I would also suspect that they would be willing to wait for you to get those matters resolved as they view you as valued enough to ask you to become a director. 

easierways

It’s an awkward one because your credit rating shouldn’t really have any affect on how you carry out your duties as a director.

Of course, being bankrupt is a different story and you cannot be a director without leave of the courts but that is something separate.

Having bad credit as a director is one of those things which might flag up when you go to apply for new company cars or something like that when they want all the directors named. 

In saying that, if the company has a strong balance sheet coupled to its 19 year history, the chances of your credit causing an issue are possibly quite low.

As with many things, honesty is the best policy. If I had a staff member who I had offered a directorship to come to me and say:

”I’d love to take this on, but I’m concerned because of XYZ and I don’t want to harm the business” 

I can tell you I would bend over backwards to sort the situation out to everyone’s satisfaction.

On the other hand...don’t say anything...and then potentially cause an issue for the company down the line and I don’t think I’d be too happy.

All depends on your relationship with the current directors and your own feelings on whether you think it’s worth disclosing it.

They didn’t offer you a directorship because of your credit rating, so, maybe you’re worrying about nothing. Just have a quick chat to him/her/them no?

MEM62

It is important to differentiate between a salaried director (employee) and a director that has an interest (shares / ownership) in the business. In your case, as a salaried director, your personal financial standing is irrelevant and will have no impact on the company. 

We have to report the names of our directors to various institutions - banks, insurance companies etc.  In all cases this is for identification purposes only and their personal credit rating is not checked.     

easierways

MEM62 said:

It is important to differentiate between a salaried director (employee) and a director that has an interest (shares / ownership) in the business. In your case, as a salaried director, your personal financial standing is irrelevant and will have no impact on the company. 

We have to report the names of our directors to various institutions - banks, insurance companies etc.  In all cases this is for identification purposes only and their personal credit rating is not checked.     

Interesting!

SeanG79

MEM62 said:

It is important to differentiate between a salaried director (employee) and a director that has an interest (shares / ownership) in the business. In your case, as a salaried director, your personal financial standing is irrelevant and will have no impact on the company. 

We have to report the names of our directors to various institutions - banks, insurance companies etc.  In all cases this is for identification purposes only and their personal credit rating is not checked.     

Interesting, as I work in the finance industry and depending on the financial strength of the business, director's searches can have a definite impact on credit decisions for the business. 

I was a director (salaried without any shareholding) some years back now at a finance brokerage and banks definitely performed credit searches when the business required credit lines.

I would reiterate what has been said above, honesty is the best policy. Should it cause an issue down the line the other directors trust may be broken

Nofinway

MEM62 said:

It is important to differentiate between a salaried director (employee) and a director that has an interest (shares / ownership) in the business. In your case, as a salaried director, your personal financial standing is irrelevant and will have no impact on the company. 

We have to report the names of our directors to various institutions - banks, insurance companies etc.  In all cases this is for identification purposes only and their personal credit rating is not checked.     

What you are referring to as a 'salaried director' is someone who simply has a title which contains the word Director, in the past I have been Director of Sales - I wasn't on the board it was simply my title. No credit check on me would have occurred in this instance. I have also had director roles where I have been on the board but not had shares - a credit check would have been carried out on me as I had voting rights in the company. I have also been a director who had shares, similarly I would have been credit checked as I was both on the board and I was a shareholder. 

MEM62

@SeanG79, Nofinway

The searches you refer to would be for ID purposes (and may involve some financial referencing as we are often asked for tax ID number as well) as financial institutions have to establish who has 'influence' over the company.  The financial standing of the company and it's board members are not linked.  For example, I could be appointed to the board of my employer tomorrow.  Financial institutions would need to check my ID to ensure that I was not connected to money-laundering or anything else untoward but my personal credit standing would have absolutely no impact on the company.  The two simply are not linked.

The financial standing of a company does not change based on who is appointed to the board.