Is my company solvent or insolvent?
A solvent company can pay its bills and liabilities when they fall due, while an insolvent company cannot. This may be coupled with cash flow difficulties, creditor pressure, or liabilities and outgoings being greater than the company’s assets.
The solvency tests
As company director, you should always be aware of your company’s solvent position. There are three tests you can run to see if your company is solvent or insolvent:
- Cash flow test
A company should be able to pay its bills and liabilities as they fall due. If not, it may be insolvent.
Other warning signs:- The company is not up to date with PAYE, National Insurance and VAT payments.
- The company is struggling to keep to a creditor’s payment terms, and any outstanding money owed cannot be paid from cash in the bank or money due to be paid to the company.
- Balance sheet test
If your company’s liabilities exceed the value of its assets, your company could be insolvent. The amount you owe to creditors should not be more than the value of your company’s assets, including any money it currently has in the bank
In addition to the previous tests, your company could have reminders to repay its debts or legal action from creditors. These can include County Court Judgements (CCJ), a Statutory Demand, or a winding-up petition for debts the company cannot repay. Even if you dispute the amount claimed to be owed, the company cannot be seen as solvent until the claim is settled or dismissed in court. If you don’t act quickly, such legal action can damage your company’s credit rating and lead to further, more severe action.
More information on County Court Judgements (CCJs)
If any of the above warning signs are evident and there are cash flow issues, your company is likely insolvent.
What if my company fails the insolvency tests?
If your company fails any of the insolvency tests, the company is likely insolvent. As director, you must act as soon as possible to ensure the situation doesn’t worsen further.
How we can help rescue your insolvent company?
The below, are two formal insolvency procedures, that would enable your company to continue trading, whilst being protected from creditor pressure.
- Repay your company debts in a payment plan via a Company Voluntary Arrangement (CVA)
A CVA is a payment plan between a company and its creditors that allows you to restructure your company’s unsecured debts, while continuing to trade, by making affordable monthly payments over a fixed period. We start by assessing your company’s financial position, determining a realistic repayment amount. These terms are then proposed to your creditors and if approved, your company enters the repayment plan. When in place, all interest and charges are dropped and creditors in the arrangement cannot take further legal action. The process lasts for up to 5 years and on successful completion, any remaining unsecured debt in the arrangement is written off.
More information about Company Voluntary Arrangements - Restructure your company through administration
Administration is an insolvency procedure for companies that are insolvent. Entering the procedure, your company will be in a temporary state of protection by a moratorium, that halts creditor action, including legal proceedings, giving your company the breathing space to continue trading. We will act as administrator and our primary purpose is to rescue your company as a going concern, attempting to restructure and turn it into a leaner more profitable organisation. If rescuing the company isn’t a viable option we will also look at the most appropriate exit strategies from administration, whether that be a potential sale of the business, assets, the whole company, or transitioning to an alternative insolvency procedure.
More information about company administration
How we can help close your insolvent company?
If your company fails the solvency tests and is insolvent, the liquidation of your company would draw a line under its operations and write off its unsecured debts. With 75% of shareholder approval, a resolution can be passed to wind the company up and formally engage an insolvency practitioner to close and liquidate the company.
- Close your company down via a Creditors Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director to move on.
More information about Creditors Voluntary Liquidations - Close your company down and start again via a pre-pack liquidation
A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
More information about pre-pack liquidation
How to get in touch with us: The next steps
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form or online chat. If suitable, we will arrange a free consultation with one of our consultants to discuss your situation in depth. - Initial assessment
During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or whether alternative solutions better suit your company’s problems - Formally engage with Wilson Field
If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us.
In summary
If you’re concerned that your company might be insolvent, you can perform several tests to determine its position. These tests include analysing the cash flow and balance sheets and determining whether legal action has been filed. If the company fails any of these tests, it may be insolvent, and you should contact us immediately. We can advise on the most appropriate solutions available and help you take the best direction for your company.
Case Studies
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
Principal Packaging Ltd
Kelly Burton • Service Agency • Administration
Sheffield administrators Wilson Field has helped save all 14 jobs at a Lancashire packaging supplier and manufacturer after it was bought out of administration.
Administrators Kelly Burton and Joanne Wright from business turnaround experts Wilson Field were appointed joint administrators on 17 February after Principal Packaging Ltd suffered cash flow problems.
The company, based at Pit Hey Place in Skelmersdale, was one of the main independent providers of quality packaging for the retail food industry, and major food and dairy suppliers.
Directors Tracy and Richard Sharratt took early advice and the business was sold to new company Surepac Ltd as a going concern saving all 14 employees’ jobs.
Kelly Burton from Wilson Field said:
“Historically, the company offered a holding service to its customers. This meant that it held a significant amount of stock at any one time, which tied up a substantial amount of cash.
“This created cash flow problems and was exacerbated in the early part of 2016 when the amount available on the company’s funding facility was reduced.
“Directors took early advice from Wilson Field with the business sold to Surepac Ltd as a going concern, safeguarding all 14 employees’ jobs. The new company will offer the same service and standards and will operate under the same management team”.
Principal Packaging, started in 2006, served packaging needs for meat, fish, horticulture and poultry sectors throughout the United Kingdom and Ireland and traded successfully in the early years.
It gained a reputation for being one of the most professional, yet affordable, companies in a competitive market with its high-quality paper, plastic or board packaging, custom print services and high customer service levels.
ET Rowlands & Sons
Kelly Burton • Automotive • Administration
Assets from the well-known Telford road haulage contractor ET Rowlands & Sons, which has closed after nearly 60 years in business, are to be sold by auction online.
The firm, known for its striking red livery on its vehicles, provided road transport solutions for UK and continental Europe and operated a modern mixed fleet of rigid vehicles, tractor units and trailers.
Last week’s closure of the company, set up in 1958 by 87-year-old current director Mary Rowland’s father, saw all 28 jobs made redundant after the company lost a major contract and potential hopes for a pre-pack sale were dashed.
Kelly Burton and Lisa Hogg from Yorkshire-based insolvency specialists Wilson Field were appointed joint administrators of ET Rowlands and Sons on 13 June at a meeting of members and creditors.
Wilson Field, have instructed valuers and asset management consultants Charterfields to dispose of the assets of the company, which operated a warehouse facility in Telford.
Vehicles and other items up for sale includes a fleet of 14 tractor units, seven rigid and flat HGVs by Scania, DAF and MAN, 14 curtainside and three flat back trailers, personalised numberplates including P7 ETR, P12 ETR, R4 ETR, S7 ETR, T2 ETR, V2 ETR, and 6 ETR, plant and office furniture. Other vehicles include a Vauxhall Movano 3.5T Dropside and Ford Transit T350 Panel Van.
Kelly Burton, director and insolvency practitioner at Wilson Field, said: “ET Rowlands & Sons was a well-established family run business that experienced loss of a major contract.
“The director came to Wilson Field for advice but regrettably the company entered administration and has been closed. As a consequence all 28 jobs have been lost. It is always sad to see a long-standing company go out of business with the loss of jobs.”
The online auction is now open and closes Tuesday July 4 from 12 noon. For further details visit www.charterfields.com
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