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What is insolvency?

Insolvency is a financial state in which a company or individual is unable to pay its debts on time and with no feasible way of paying them in the future.

Insolvency can also be described as owing more than you own. Any business, company, partnership or individual can find themselves insolvent. If the problem is ignored, then creditors can take serious legal action against you in respect of unpaid bills. These may be County Court Judgements (CCJs), bailiffs calling or even a statutory demand – which if ignored can result in bankruptcy for an individual or a winding-up petition for limited companies and limited liability partnerships.

Thankfully, there are several debt solutions available if insolvency rears its frightening head.

Any insolvency advice should be provided by a licensed insolvency practitioner such as Wilson Field. We are fully licensed and regulated by ICAEW.

How can I tell if my company is insolvent?

If your company has debts, it doesn’t automatically mean it’s insolvent. If you’re unsure whether your company is solvent or insolvent, you can look at your balance sheet and your cash flow, as well as checking for any court or legal action that may have been filed against your company.

How can I tell if I’m personally insolvent?

If you have personal debts which you can’t afford to repay when they’re due, you are insolvent. If it’s a “one-off” situation and you can see a solution in the near future, then it’s just a temporary inconvenience. But if the debt has built up over a period and you cannot see it improving or if the situation is deteriorating, you are personally insolvent and need to take proactive steps to address it.

What is insolvency?

What’s the worst that can happen in insolvency?

The worst-case scenario for insolvent parties will depend on whether they are an individual or part of a limited company or partnership, as different options and regulations apply. For limited companies, your creditors could petition for the company’s winding-up, which would effectively close the company. For individuals, your creditors could apply to make you bankrupt if you owe them at least £5,000.

How to deal with insolvency?

Fortunately, there are insolvency and debt relief options to prevent the worst from happening. How you deal with your insolvent business is dependent on its individual circumstances.

Can the company be saved?

If the company is currently insolvent, but the core business model is solid and could be viable if free from its liabilities, it may be possible to save the company. A licensed insolvency practitioner (IP) will be able to advise you on the best course of action, which could include a Company Voluntary Arrangement (CVA) for companies, or an Individual Voluntary Arrangement (IVA) for individuals and sole traders. Alternatively, it might be more beneficial to put the company into administration to protect it from legal action by creditors.

We do not charge upfront fees for CVAs or IVAs. Fees are included in your monthly payments, although we ask for the first monthly payment in advance of any creditors’ meeting.

If the company can’t be saved

Unfortunately, it might not be possible to save the company. Whether the accrued debt is too large to recover from, or creditor pressure is too high, you may be better off closing the company down. In that case, you could apply for a Creditors Voluntary Liquidation (CVL), which is usually preferable to having the company forced into compulsory liquidation, after being served with a winding-up petition.

There is usually a high cost associated with a CVL, meaning creditors are unlikely to see a sizable return.

In summary

Insolvency is a state in which you are unable to cover your liabilities to creditors. Insolvency can apply to both companies and individuals. In the worst-case scenario, your company could be forcibly wound-up by your creditors, or you could be put into bankruptcy. There are solutions to these issues, and which of them is best for you will depend on your individual circumstances and whether it’s possible, or you want to save the company.

How we can help

If you’re struggling with business or individual debt, or your creditor pressure is growing, and you’re worried they’ll force you into bankruptcy or issue a winding-up petition, you should contact us as soon as possible. The sooner you act, the higher the chances of your company surviving. We have a team of fully licensed and regulated insolvency practitioners to carry out whatever option is best suited for you or your company. We offer free consultations with no obligation and face-to-face meetings nationwide.

Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner