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pressures of insolvency

The Pressures of Insolvency

Authored by Andy Wood

Andy Wood

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Approximate read time: 3 minutes

A common component of cases dealt with by insolvency practitioners (IP) is the stress and worry that financial difficulties bring to business owners.

These anxieties are often compounded when the business is not incorporated, or where directors of limited companies have signed significant personal guarantees, and they know their personal assets are at risk.

The IP’s principal duty is to maximise realisations for the benefit of creditors wherever possible, but that should not impact on the IP treating all parties involved with respect and an understanding of the position they face.

The duties of an insolvency practitioner

Pressure on the business

Regardless of whether your business is a limited company or a sole trader, the pressures of insolvency are often unavoidable. Creditors left out of pocket will often try to claim back what they’re owed and could even resort to legal action. Creditors are perfectly within their rights to do this, but it will undoubtedly add further stress and pressure to directors and their businesses.

Owners may be concerned for their employees and feel they have let them down, especially where their jobs are at risk and redundancies are possible. Depending on the circumstances leading up to the insolvency, your professional standing could suffer, which is less than ideal in the world of business.

How creditor pressure can affect a limited company

pressures of insolvency

Psychological effects

Depending on your disposition, the stress of heading an insolvent company can have a damaging impact on your mental health and wellbeing. Having a business that suffers from an amount of debt that makes it insolvent often triggers a level of stress and anxiety relating to matters outside of creditors chasing payment. It could extend to a constant state of worry, lack of sleep, break downs in personal relationships, or even a deterioration in physical health.

How creditor pressure can affect you personally

The insolvency practitioner’s role

Everyone handles stress differently, and a considerable part of an IP’s job is to understand the areas of concern for directors to fully assess the options available, and give them the best advice possible. This process involves spending a lot of time listening to the owner, gauging their concerns on both a business and a personal basis and trying to give them the best solution to help the business and themselves.

IPs are sometimes told they are “50% accountant and 50% social worker”, and while the percentages are open to discussion, the sentiment is true.

In summary

If your business becomes insolvent, it won’t be a pleasant experience. Creditors are likely to chase you for payment, and this alone could cause a considerable amount of stress. When you add concerns about your staff, and how the insolvency could reflect negatively on your future business prospects, then it’s easy to buckle under the pressure.

As a result, the situation can affect directors and other personnel and lead to a deterioration in their psychological wellbeing. Part of the insolvency practitioner’s job is to try and ease these pressures by assessing the anxieties among the business owners and provide advice that offers the most benefits to them.

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