What is insolvency?

“We are always juggling bills and getting hassled by the people that our company owes money to. What is company insolvency and what should I do about it?”

There are two simple tests to assess whether your company is insolvent:

1. The asset test – Do your company’s debts outweigh its assets?

2. The cash-flow test – Can your company pay its bills on time?

Definition of an Insolvent Company

If your company’s debts outweigh its assets, then it is by definition, insolvent. In addition, if your company cannot pay its bills when due, this would also indicate company insolvency.

Of the two tests above the cash-flow test is probably the most important as you can have all the assets in the world, but if you cannot pay your bills on time you may find yourself forced into liquidation. An angry creditor (someone you owe money to) only needs to be owed £750+ to be able to force your company into liquidation by the use of a winding up petition.

Once you realise that your company’s insolvent, it is vital that you take immediate action to generate funds and pay, or renegotiate outstanding debts to protect your company from its creditors. It is equally important to start to assess the impact on you as a director to avoid accusations of wrongful trading and potentially being made personally liable for any company debts.

It is critical for you as a director to understand what we do as we place your protection as our priority and can often help save your company, but here are a number of key points to help. We specialise in company insolvency advice and solutions. Our insolvency consultants can provide specialist help and guidance to get you out of this situation as quickly and safely as possible. We are protecting you to ensure that we guide you down the right insolvency path and that you do not increase any associated personal liabilities in the process.

Insolvency Key Points:

  • Avoid increasing the company’s debts once you are aware that the company is insolvent.
  • You cannot simply pay off personal guarantees through the sale of assets to reduce your personal debts whilst neglecting the creditors as this can cause more complications for you.
  • You cannot transfer assets to a newly formed company as there could be potential serious implications to you personally.
  • Employees are regarded as preferential creditors and in any event would be covered under the Government scheme if the company does not have funds to pay them.
  • HMRC are responsible for more forced liquidations than any other creditor out there, so if your company owes tax – have a chat with us to see how we can best manage the situation.
  • Whilst shareholders own the company, the directors run the company and they have responsibilities such as health and safety, ensuring accounts are filed, tax is paid and so on.
  • A limited company is also a completely separate entity in its own right and has its own rules and regulations and as a director you act as an officer of the company. This is very important to understand as your responsibilities are to ensure the company’s interests are at the heart when making decisions. This changes when a company becomes insolvent as you must place the creditors’ interests at the heart of your decision making. Failing to do so or making the wrong decision can create serious financial penalties so it’s important to understand what insolvency is.

Free Advice

There’s no risk in speaking with us, the advice and the first meeting with our company insolvency specialists is absolutely free of charge and we guarantee that you will have your options presented to you by the end the first meeting. We will also provide you with a free report on your insolvency situation so you get some of the very best company insolvency advice with no obligations. Send us an email, or alternatively, if you would prefer to get some advice from one of our insolvency consultants over the phone then call us on; 08000 746 757.