If insolvency is likely, there is a finite list of things you need to do before the process starts. Miss any of them and you make the liquidation more expensive, the investigation longer, and your personal position harder to defend.
We have compiled this checklist from the patterns we see in every insolvency case we handle. The directors who come through the process best are not the ones with the cleanest balance sheets. They are the ones who prepared before the liquidator arrived. The ones who had their records organised, their decisions documented, their staff informed, and their personal position assessed. Every item on this list costs you time, not money. Skipping any of them costs you both.
Quick Answer: The Insolvency Preparation Checklist
Before entering any formal insolvency process, you should: (1) get a formal solvency assessment, (2) organise all company records and documents, (3) stop incurring new debts, (4) stop making selective creditor payments, (5) assess your personal exposure, (6) brief your staff, (7) check your D&O insurance, (8) document your decision-making, and (9) consult a licensed insolvency practitioner. Every one of these is explained below with the specific action required.
Get a formal solvency assessment in writing from your accountant
Organise all company records: accounts, bank statements, PAYE, VAT, board minutes, security documents
Stop incurring new debts, placing orders, or making commitments the company cannot honour
Stop making selective creditor payments — pay only ordinary operating expenses
Assess your personal exposure: guarantees, director’s loan account, transactions at undervalue
Brief your staff honestly; begin collective consultation if 20 or more redundancies are planned
Check your Directors’ and Officers’ insurance is still in force and covers insolvency claims
Document your decision-making from this point forward with dated, written records
Consult a licensed insolvency practitioner before the process begins
1. Get a Formal Solvency Assessment
Before you can choose a route, you need to know whether the company is solvent or insolvent. The two statutory tests under section 123 of the Insolvency Act 1986 are the cash-flow test (can you pay debts as they fall due?) and the balance-sheet test (do assets exceed liabilities including contingent debts?). Failing either means the company is insolvent.
We advise getting your accountant to run this assessment formally, in writing, before you make any decisions about closure or rescue. The written assessment becomes evidence that you acted on professional advice. A verbal conversation in the pub does not carry the same weight in a conduct report.
Key Takeaway
A formal written solvency assessment from your accountant is not a formality — it is evidence. It documents the point at which you became aware of insolvency, anchors every subsequent decision to professional advice, and carries weight in the liquidator’s conduct report. An informal verbal opinion does not.
2. Organise All Company Records
The liquidator will ask for: statutory accounts for the last 3 years, management accounts up to date, bank statements for all accounts (last 2 years minimum), VAT returns, PAYE records, Corporation Tax computations, creditor and debtor lists, board minutes, the certificate of incorporation, and all security documents (charges, guarantees, debentures).
We cannot overstate how much this matters. A complete document pack handed over on day one of the liquidation signals cooperation, reduces the liquidator’s costs (which come out of the company’s assets), and creates a positive first impression that carries through the entire conduct assessment. We have seen directors who prepared their records in advance complete their liquidation months faster than directors who did not.
3. Stop Incurring New Debts
Once you know insolvency is probable, do not place new orders, take on new credit, sign new contracts, or make commitments the company cannot honour. Every new debt incurred after the point where you should have stopped trading is a debt the liquidator will examine as part of the wrongful trading assessment.
We see directors who signed a new supplier contract the week before the CVL because they “needed to keep the business running.” That contract created a new creditor who was owed money from day one of the liquidation. The liquidator noted it in the conduct report.
4. Stop Making Selective Creditor Payments
Pay normal operating expenses in the ordinary course of business: rent, utilities, wages for work done. Do not settle favoured creditors, repay your own director’s loan account, pay family members ahead of trade creditors, or make lump-sum payments to anyone. Selective payments when the company is insolvent create preference risk under section 239 of the Insolvency Act.
We tell directors: if you are choosing who gets paid, you have passed the point where you should be making those choices. The liquidator makes them, in the statutory order. Let them.
5. Assess Your Personal Exposure
List every personal guarantee you have signed. Check your director’s loan account balance. Identify any transactions in the last two years that could be challenged as preferences or transactions at undervalue. Understand whether HMRC could issue personal liability notices for unpaid PAYE or NICs.
We advise doing this assessment before the liquidation starts, not after. A solicitor specialising in director liability can tell you exactly where your exposure sits and help you prepare for questions the liquidator will ask. The worst time to discover you have a £40,000 personal guarantee is when the bank sends you a demand letter after the company is dissolved.
6. Brief Your Staff Honestly
If the company has employees, they need to know what is happening. If you are making 20 or more redundant within 90 days, collective consultation must begin at least 30 days before the first dismissal. This is a legal requirement, not a courtesy, and failure to consult is a criminal offence that carries a protective award of up to 90 days’ pay per employee.
We understand this conversation is painful. A Wednesday morning sit-down in the break room where you explain the situation honestly, tell your staff what they can claim from the National Insurance Fund, and answer their questions directly is uncomfortable. Not having that conversation and letting them find out from the liquidator’s letter is worse for them, and worse for your conduct record.
Risk Warning
Under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, collective consultation must begin at least 30 days before the first dismissal when 20 or more employees are being made redundant within 90 days. Failure to comply is a criminal offence and exposes the company (and potentially directors personally) to a protective award of up to 90 days’ gross pay per affected employee, enforceable at an employment tribunal.
7. Check Your Directors’ and Officers’ Insurance
If the company has D&O insurance, check whether the policy is still in force and whether it covers claims arising from insolvency. Some policies exclude insolvency-related claims. Some lapse when the company stops trading. Finding this out after a wrongful trading claim is too late. Finding it out now means you know whether you have a financial backstop.
8. Document Your Decision-Making
From this point forward, keep a written record of every significant decision: why you made it, what information you had, and what professional advice you relied on. Board minutes are the formal mechanism, but even a dated email to yourself recording the reasoning is better than nothing.
The liquidator will reconstruct the timeline of your decisions. Contemporaneous documentation is the strongest evidence that those decisions were made in good faith. Reconstructing your reasoning months later, from memory, under investigation, is a much weaker defence.
9. Consult a Licensed Insolvency Practitioner
This should be the first item on the list, not the last. But we put it here because many directors want to prepare before they call. If you have worked through items 1-8, you will arrive at the consultation with a clear picture of the company’s position, organised records, and an understanding of your personal exposure. That makes the consultation more productive and the advice more specific.
Company Debt connects directors with licensed, regulated insolvency practitioners. The initial consultation is free and confidential. Make that call now, with this checklist in hand.
How We Wrote This Article
This article was written by the Company Debt editorial team based on the Insolvency Act 1986, the Companies Act 2006, the Trade Union and Labour Relations (Consolidation) Act 1992 (collective consultation), and practical experience from pre-insolvency preparation cases handled by licensed insolvency practitioners in our network. The article was reviewed by Chris Andersen, a licensed insolvency practitioner regulated by the IPA.
Company Debt is a commercial service that connects business owners with insolvency professionals. We may receive a fee when you engage a practitioner through our service. This does not influence our editorial content or recommendations.
FAQs About the Insolvency Checklist
How long before insolvency should I start preparing?
As soon as you recognise that insolvency is probable. There is no minimum preparation period, but we find that 2 to 4 weeks of preparation before initiating a formal process produces significantly better outcomes than acting without preparation. The earlier you start, the more organised you will be when the liquidator arrives.
What if I cannot find all my company records?
Tell the liquidator what is missing and why. Request duplicates from banks, HMRC, and Companies House. Reconstruct what you can from available sources. Cooperation and honesty about gaps is treated far better than silence. Failure to maintain adequate records is a conduct issue, but the assessment considers your efforts to remedy the situation.
Should I pay off my director’s loan account before insolvency?
No. Repaying your own loan account when the company is insolvent is a connected-party preference under section 239 of the Insolvency Act. The liquidator can claw it back within two years. If your loan account is overdrawn, the liquidator will pursue you for repayment. Take specific advice on your loan account position before the insolvency process begins.
Do I need a solicitor as well as an insolvency practitioner?
The insolvency practitioner advises on the company’s route. A solicitor advises on your personal position: personal guarantees, wrongful trading exposure, disqualification risk, and your rights during the investigation. If you have significant personal exposure, we advise having both. They serve different functions.
