If you business is struggling, you will likely be aware that insolvency is a particular threshold that directors need to be aware of.

Once insolvent, a oompany director’s responsibilities shift towards creditors and away from shareholders. That means any action you take must reflect an awareness of that primary responsibility or your risk accusations of wrongful trading.

This article will help you understand how to assess whether your company is insolvent or not.

Is My Company Insolvent

How Do you Know if a Company is Insolvent?

A company is insolvent when:

  • It cannot pay its debts
  • When corporate liabilities outweigh assets on a balance sheet

Typical warn signs that your nearing the point of insolvency are as follows:

  • You’ve reached borrowing limits from banks
  • Creditors are chasing you for payments
  • You can’t afford to pay staff wages
  • HMRC tax arrears
  • Directors have sense of continually fire-fighting

How do I Check if my Company is Insolvent?

To check if your company is insolvent, we’ve created a simple and intuitive insolvency test calculator.

It takes less than two minutes and will give you a clear indication of whether your company is insolvent.

Cashflow insolvency is when a company cannot meet demands for payments, such as being unable to keep up with borrowing commitments or pay suppliers’ invoices. Cashflow insolvency is often an immediate situation but it may be possible to improve liquidity and continue trading.

What Can We do if the Company is Insolvent?

Much depends on the circumstances and what the reasons are for the insolvency – so, has the business over extended itself, has there been a costly lawsuit or fine or  is the future trading picture more positive?

Business recovery and turnaround strategies tend to be most effective if intervention comes early and directors seek advice before action such as winding up order is taken.