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.
- Legal action test
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 for engagement
- 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
Aristocrat Pet Supplies
Kelly Burton • Retail • Administration
The business and assets belonging to a Sheffield online pet supplies company are up for sale. Aristocrat Pet Supplies, a family owned and run business, milled its own feed and seed on-site in Sheffield and has been trading for over 25 years selling agricultural raw materials, livestock, textile raw materials and semi-finished goods.
Sheffield-based insolvency specialists Wilson Field were called into the firm after it experienced increasing pressure and competition online. Andy Wood and Lisa Hogg were appointed as joint administrators for the company on January 26.
Wilson Field is trading the business in the short term with a view to finding a potential buyer for the company based on Holbrook Green Industrial Estate near Sheffield.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“The business has encountered increased competition in recent years, principally from discount stores which have reduced margins.
“It has been on the market for several months but has not attracted any significant interest so far. As administrators, Wilson Field is trading the business in the short term to maximise realisations on a reduced staff base of seven.”
Aristocrat, which employed 19 staff, offered a range of pet supplies including dog and cat treats, chews, small animal bedding, wild bird supplies, poultry and aquatic food.
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.”
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
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