What is Insolvency?

The official definition of insolvency is when a company can either not pay its bills, or when its assets have less value than its liabilities. These two tests are known as the cash-flow test, and the balance sheet test, both of which you could access from our simple insolvency test tool here.

It’s important to realise that, should you fail either of these tests, you are insolvent under English insolvency law. As a director, this means your primary responsibility is no longer towards your shareholders but your creditors, and as such you need to behave very cautiously to avoid possibly directorial misconduct. We would advise you to call us for advice as soon as possible.

What’s the Difference Between Insolvency and Bankruptcy?

Bankruptcy only refers to personal debt and so would be incorrect terminology to use for company debt.

The Insolvency Act 1986

Matters surrounding both personal and corporate insolvency are covered by the key piece of legislation known as the Insolvency Act 1986.

What are Insolvency Practitioners?

Insolvency practitioners (IP’s) are accountants or lawyers, though there is no legal requirement to be either. In the UK, IP’s must be licenced from an accredited professional body, however, which requires passing the difficult Joint Insolvency Examination Board (JIEB) exam. Any formal insolvency process in the UK requires the appointment of a licensed IP.

The Insolvency Process

When a company is insolvent, there are some options available, all of which have different processes involved. If a company is being compulsorily wound up then that process is liquidation. If it is a company which could be rescued, then it may go into administration or administrative receivership. If the company suspects it is about to be forcibly liquidated, then it could instigate a creditor’s voluntary liquidation.

Choosing the best solution for a company is one which requires careful thought and sound advice, so if your company is on the brink of insolvency, we recommend you consult a professional to discuss your options.

What’s the Insolvency Register?

This is a government list of people who are personally insolvent, so not applicable to companies, and is available here. The list of companies in liquidation is available here.

Who are the Insolvency Service?

This is a government agency with over 1700 staff across the UK which administers both personal and corporate insolvency, including the investigation of misconduct.

Who are R3?

R3 call themselves the Association of Business Recovery Professionals. It is a not for profit limited company which and the leading professional association for insolvency, business recovery and turnaround specialists in the UK.

How to find an Insolvency Practitioner?

The Insolvency Service offers a useful search functionality to find licensed IP’s here. Alternatively, feel free to ask us as we have a longstanding relationship with some of the most reliable IP’s in the business.

How to File for Insolvency?

Although this is a frequently asked question, in practice a company doesn’t file for insolvency. Rather, after discussion with your financial adviser, you embark upon a specific insolvency process with the aim of either rescuing or closing your company. All of these are handled by a licensed IP, and he/she would deal with all the necessary paperwork.

What are Insolvency Notices?

When a company becomes insolvent, the law specifies that certain insolvency events are advertised as insolvency notices in the official public record known as the Gazette. When a company is ‘gazetted’, it means the details of the insolvency, e.g., liquidation are in the public domain. This makes it easy for relevant parties such as creditors to find out about the status of the process, and contact the relevant IP if necessary.

Would you like Advice?

If you are concerned about mounting debt, or would simply like some free, confidential advice, please get in touch with us via the live chat or telephone 08000 746 757.

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