Whether you remain personally liable when a business closes depends entirely on how that business was structured. This is one of the most important distinctions in commercial debt law.
Sole trader: If you operated as a sole trader — that is, running a business under your own name or a trading name without incorporating a company — there is no legal separation between you and the business. The debts of the business are your personal debts. Closing the business does not extinguish them. A creditor can continue to pursue you personally, regardless of whether the business is still operating, because you were always the debtor.
Company: If the business was operated through a registered company (a Pty Ltd), the company is a separate legal entity from its directors and shareholders. When a company is wound up, its assets are used to pay creditors in the order prescribed by law. If the company's assets are insufficient, creditors generally do not have a right to pursue the directors personally — unless a personal guarantee was given, or the directors are found liable for insolvent trading.
Partnership: Partners in a business are jointly and severally liable for partnership debts. This means each partner can be pursued individually for the full amount, even if the partnership has dissolved.
If you are uncertain about your personal exposure in relation to a business debt, seek independent advice. A free financial counsellor or community legal centre can help clarify your position.
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