A recent BBC investigation has looked into the collapse of a pay-to-enter prize draw company, which was wound up at the High Court in 2025 over unpaid debts. Customers were left devastated when they’d been told they’d won cash prizes but never actually received their winnings.
The company’s sole director was later made bankrupt in separate proceedings, and questions have since been raised about his involvement in a new prize draw venture, which he disputes.
What bankruptcy restrictions cover
Bankruptcy is a personal insolvency procedure, which means it applies to the individual rather than the company. If someone is an undischarged bankrupt, they can’t act as a limited company director, and they have to resign from their role and participation in company management until the bankruptcy is resolved unless they have permission from the court.
In most cases, a person is discharged from bankruptcy twelve months after the bankruptcy order was made. However, if they haven’t carried out their duties when bankrupt, or they’ve acted carelessly or dishonestly, the restrictions can be extended through a bankruptcy restrictions order.
A person does not need to be listed at Companies House as a director for the restriction to apply. If they are making decisions about how a business is run, setting its direction, controlling its money or presenting themselves publicly as the person behind it, they may be regarded as participating in the management of the company. Acting as a director, or taking part in the management of a company, while subject to bankruptcy restrictions is a criminal offence.
What can a bankrupt person still do
Bankruptcy does not prevent someone from working, they can still be an employee of a company, including a company in the same sector they worked in before, as long as they are actually working as an employee and are not involved in managing the business.
If you’re an accountant and a client is asking what they can do while bankrupt, there are some particular warning signs to be aware of:
- They want to keep running a business with a spouse or relative appointed as director
- They’re described as an employee but making the decisions
- They’re promoting a venture publicly as the person behind it
- They’re trading under a business name that isn’t their own
- They’re taking credit over £500 without disclosing the bankruptcy
They can also trade as a sole trader though this means the individual is personally responsible for the debts of the business. They must trade under their own name, or the name they were trading under when they were made bankrupt, and that name has to appear on business paperwork. They also cannot obtain credit of more than £500 without telling the lender they are an undischarged bankrupt.
If someone does want to act as a director during their bankruptcy, they would need to go through a formal process of submitting an application to the court for permission.
What happens to customers who have paid money to struggling businesses?
Like what happened to the prize winners in the BBC article, the part of these cases that tends to attract attention is the customers who have paid money for a service or product and do not receive what they’ve paid for.
When a company is wound up, customers who are owed money generally class as unsecured creditors. They are paid after secured creditors and preferential creditors, which often means some will get a low return or unfortunately nothing at all. Customer prepayments are rarely protected unless they have been held in a separate account or covered by a scheme designed for that purpose.
Richard Hunt, our insolvency practitioner at Exigen Group, said:
“The difficult situations we see aren’t always the ones where a business has failed suddenly. It’s when a director has tried to keep the business going long after it has become clear the business cannot deliver what customers are paying for, usually because stopping trading feels like admitting that the business is over.
Most directors have tried everything possible to keep the business going, but continuing to trade and take money in that position is where directors expose themselves to personal liability, and it is also what turns an insolvent liquidation into something that leads to further action from the Insolvency Service. If a business cannot meet what it has already promised, that is the point to take advice, not after another few months of hoping it turns around.”
Are you concerned about your company’s financial situation?
If a director or their accountant is worried about a company’s financial situation, then they could have more options than they often realise, but those options reduce the longer they continue to trade insolvently.
If you’re unsure whether your company can meet its commitments, or you’re worried about your own exposure as a director, contact us for a confidential conversation about your options.