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
K2 Technologies Ltd and K2 Thermal Imaging Ltd
Kelly Burton • Service Agency • Administration
Wilson Field has helped secure the sale of two related North East businesses, which developed and manufactured thermal imaging equipment, as a going concern to Cenergem Limited backed by a group of local investors not associated with the current management.
Kelly Burton and Joanne Wright from Sheffield-based insolvency specialists Wilson Field were appointed joint administrators of Darlington-based K2 Technologies Ltd and K2 Thermal Imaging Ltd on 25 July 2016.
The two companies had experienced cash flow problems following to a sharp decline in the demand for their products due to increased global competition in the market over the last 18 months.
The sale, which resulted in six of the current eight jobs being saved, was achieved by Wilson Field, working alongside valuers and asset management consultants Charterfields, who handled a number of inquiries and Mark Wilkinson, insolvency partner at Shulmans Solicitors in Leeds.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:
“During the past 12 to 18 months K2 had begun to experience increased competition in the market. Competitors had started to manufacture and sell similar products at a lower price, meaning the company had seen a sharp decline in the demand of products and a resultant shortage of cash flow.
“Our job was to realise a sale of K2 as a going concern to achieve the best return for the company’s creditors. There was significant interest by a number of parties. The resultant sale has also saved six of the eight jobs.”
K2 Thermal Imaging Ltd and its predecessors were involved in the development of three products establishing the company as a lead pioneer in thermal imaging.
The company designed and engineered three main product ranges for extensive use in the marine, firefighting and industrial sectors, allowing operators to enter smoke-filled environments to detect and rescue people with a hands-free application, therefore improving success rates in recovery.
Derwent Castings Limited
Kelly Burton • Metals • Creditors Voluntary Liquidation (CVL)
Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher than the expected dividend of 60p in the pound.
A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.
The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.
Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.
Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.
“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.
“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”
Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.
However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.
In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.
Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.
Oldham Precision
Kelly Burton • Construction & Engineering • Administration
Machining engineers Oldham Precision has been bought out of administration saving all 12 jobs.
The company’s principal activity was the sub-contracting manufacture of large volume batch precision machined components for clients across a wide range of industries including aerospace, paper converting, printing, coatings, electronics and valve construction.
Administrators Kelly Burton and Lisa Hogg from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 17 January after the company suffered cash flow problems.
Originally established in 1982, the company, based at Red Rose Business Park on Shaw Rd in Royton, offered subcontract engineering including CNC milling, grinding and turning.
After advice from Wilson Field, the business was sold to the existing management team as a going concern saving all 12 employees’ jobs.
Kelly Burton, director in the Leeds office at Wilson Field said;
“Following discussions with the director, the business was sold as a going concern, safeguarding all 12 employees’ jobs and offering a better return for the company’s creditors than alternative options.
“The new company will be under the same management offering the same standards of service to its customers.”
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