If you are insolvent, this means:
- Your company can’t pay its bills when they fall due, or
- Your Corporate liabilities outweigh assets on a balance sheet
Insolvency can mean the company gets forcibly closed down unless prompt action is taken.
For directors, it brings with a complete shift in responsibilities. At the point of insolvency, you are now responsible to your creditors, rather than shareholders, and your actions must demonstrate you understand that.
This is the time to take professional advice from a licensed insolvency practitioner, your accountant, or a solicitor.
Options for Dealing with Company Insolvency
The legal procedures for dealing with insolvency are laid out in a key piece of legislation known as the Insolvency Act 1986.
3 Options Allow a Company to Continue Trading
- Try to reach an informal agreement with creditors
- Propose a company voluntary arrangement
- Put the company into administration (includes a moratorium against legal action by creditors)
If the Company Needs to Close
- Liquidation (winding up a company) This will mean your company is closed down, and any assets sold and paid to creditors in order of priority
Is there a Company Insolvency Register?
There is no official Companies House insolvency register, as exists for individuals who have declared bankruptcy.
However, you can search Companies House for information, including whether a company is insolvent, here.
All insolvency events must be publically advertised, for the benefit of creditors, in the London Gazette, which is the official journal of public record. You can search for insolvency notices here.
What Happens When a Company Files for Insolvency?
The process is as follows.
Insolvency in the UK requires the services of a licensed insolvency practitioner, to ensure fair play to creditors, so you must first contact a firm such as ourselves.
The insolvency practitioner will explain your options to you and, if it’s decided the company must close, they will place your company into liquidation.
This means the business ceases trading immediately, and employees are made redundant. The insolvency will be first advertised in the London Gazette, the official journey of public record.
Your powers as a director will cease while the Insolvency Practitioner will take over creditor communication, and commence the process of selling company assets to pay off your debts.
Debts are paid to creditors via a strict order of priority.
Once the process is complete (a typical liquidation might take 1 year, depending on complexity) then the company is struck off the register at Companies House, ceasing to exist.
Closing an Insolvent Company (Liquidation or ‘Winding up’)
Company liquidation is overseen by an insolvency practitioner, acting as a liquidator. Having reached insolvency you can either choose voluntary liquidation or, alternatively, a company might compulsorily be liquidated by order of the court for non-payment of debt.
The liquidator has the following responsibilities:
- to ensure all company contracts (including employee contracts) are completed, transferred or otherwise ended
- ceasing trading the company
- settling any legal disputes
- Selling any assets at at fair market value
- collecting any revenye money owed to the company
- distributing any funds to corporate creditors
- repaying share capital to shareholders