Why it’s important to speak to a licensed insolvency practitioner (IP)
It’s important to speak to a licensed insolvency practitioner (IP) as soon as possible if you’re concerned about your company’s financial standing, or if you’re considering closing a solvent company. Only licensed insolvency practitioners, such as ours, can provide you with regulated advice and carry out formal insolvency procedures.
By taking professional advice early, you’ll receive free, impartial, confidential, non-obligatory advice you can trust. As licensed insolvency practitioners, we will:
- Review your company’s position
- Explain your options and the associated costs
- Help you understand your duties as director
- Assist you with the implementation of the appropriate formal process where required
Does speaking to an insolvency practitioner commit me to a service?
Speaking to an insolvency practitioner does not mean you’re obliged to engage their services, nor does it mean you will immediately lose control of your company or that it will be forced to close.
Taking advice means you’re acting in the company’s best interests and can set you on the right path sooner. Conversely, delaying taking advice can worsen the situation.
Once you have received advice and wish to proceed with an insolvency procedure, you will be given an engagement letter setting out the terms of work, and it is this document that signals your commitment to a service.
Why taking advice early protects directors
If your company is, or will likely soon be, insolvent, your priorities as its director change, and your duties shift towards protecting the company’s creditors.
Ignoring your company’s financial issues or handling them incorrectly can lead to:
- Allegations of wrongful trading
- Challenges to transactions (for example, preferences or transactions at undervalue)
- Personal liability for the company’s debts in some circumstances
- Investigation into your conduct as director during liquidation
By taking advice from a licensed IP, you’re receiving professional guidance and taking responsible action, which can be important if the company enters a formal insolvency process later.
Doing so early helps manage potential risks and gives you a better understanding of your position while you explore your company’s options.
What are the risks of unregulated insolvency advice?
There are financial advisers and ‘unlicensed insolvency practitioners’ who can give advice. However, choosing an unlicensed insolvency adviser may result in:
- Lower quality service
- Hidden costs (such as referral fees)
- Lack of experience
- Lack of due diligence and adherence to compliance
- Use of unregulated insolvency avoidance schemes
- Potential future liabilities
How do I know if my company is solvent?
A company is solvent if it has sufficient assets to settle all liabilities in full plus statutory interest within a given period of less than 12 months.
There are specific tests that a director can do to help establish the solvent position of their company. However, these tests cannot say with certainty whether 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. - 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.
Creditor pressure, such as County Court Judgments (CCJs), statutory demands or winding-up petitions, can also indicate financial distress. However, legal action alone does not automatically mean a company is insolvent.
More on whether your company is solvent or insolventWhen should I speak to an insolvency practitioner?
You need an IP when your company is struggling financially, or you are looking to place your company into an insolvency procedure. As a director, you must always be aware of your company’s solvent position and watch out for signs of deterioration. Common warning signs of a struggling (or soon-to-be struggling) company can include, but are not limited to:
- Cash flow problems
- Falling profits
- Unaffordable company debts
- Inability to pay the company’s liabilities when they fall due
IPs can also carry out Members Voluntary Liquidations (MVLs) for solvent companies. An MVL may be a viable closure option if your company has more than £25,000 in cash and assets to distribute, where it can be more tax-efficient than closing through dissolution.
More on when you would need an insolvency practitionerWhat happens next if formal action is required?
Speak to us, and we’ll advise you on the best way to proceed with any of your company’s financial challenges, or if you’re looking to close your company through a solvent liquidation. We are licensed and regulated to carry out the following formal procedures.
- 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.
- Restructure your company through administration
Administration is an insolvency procedure for companies. 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.
- 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.
- 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.
- Close and liquidate your solvent company via a Members Voluntary Liquidation (MVL)
An MVL is the liquidation and closure of a solvent company. The procedure will formally wind up and close your company, whilst extracting the company’s maximum value, through its various tax benefits. The company’s assets, including any premises, are realised, with the remaining funds distributed to shareholders once creditors are satisfied.
How do I know if an insolvency practitioner is licensed?
All insolvency procedures, including liquidation, CVA, and administration, can only be carried out by a licensed IP. All IPs must be licensed and regulated by a regulatory body such as the ICAEW, and must follow the regulations in the Insolvency Act and the Insolvency Rules.
You can check if an IP is licensed via the government website.
View our licenses on the ICAEW’s website
Why speak to us?
We have years of experience, advising directors on company rescue, turnaround, and closure solutions across the UK since 2001.
We understand the stresses associated with financial pressure and that every company has different circumstances. By speaking to us, you’ll receive:
- A straightforward approach
- Clear, regulated advice from licensed professionals
- A transparent breakdown of your options
- Solutions tailored to your situation
- Confidential initial discussions with no obligation
How to get in touch with us: The next steps
If you’re unsure where your company stands, whether it is under financial pressure or simply ready to be closed, the first step is to talk it through with an adviser.
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form, or online chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation. - 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 our services
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
As a company director, it is your responsibility to protect your company’s assets and act in the best interest of its creditors when financial difficulty arises. If your company is in financial trouble, you should seek insolvency advice as soon as possible. Insolvency practitioners can also advise you if you’re looking to close a company through a solvent liquidation.
While some financial advisers may claim to offer advice and services, they will not be able to provide formal insolvency procedures for companies unless they are licensed and regulated.
For free, impartial, confidential advice with no obligation from a firm of licensed and regulated IPs, speak to us. We have a team of licensed and regulated IPs, and can offer help and advice regarding all aspects of insolvency, including business finance and turnaround procedures.
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