Insolvency Advice - Frequently Asked Questions

If your company cannot repay debts, sometimes it is difficult to know where to turn for help — but many sources of insolvency advice are out there. Although each business’s situation is unique, there are many common scenarios and questions raised about how to deal with insolvency.

What is insolvency?

The Oxford English Dictionary defines being insolvent as, simply, “unable to pay debts owed”. Broadly, insolvency means that if your company is unable to meet its debt repayments often due to cash flow problems. However, the legal definition of insolvency is more precise — see the answer to the following question for further details.

How can I tell if my company is insolvent?

Under English law, a company is considered legally insolvent if:
 

• It can be proven to the satisfaction of a court that the business is unable to pay its debts as they fall due
• It fails to repay a debt of at least £750 within three weeks of being issued with a Statutory Demand for payment,
• The total value of the firm's assets is less than the amount of its liabilities (after taking into account its contingent and prospective liabilities).

Can I continue to trade if my business is in a period of insolvency?

Although it may be possible to continue trading while resolving short-term cash flow problems, in the UK , it is generally against the law to continue trading if you know your business is legally insolvent.

Continuing to trade while insolvent can result in legal action under the Insolvency Act 1986, and company directors who knowingly continue to trade during insolvency may be investigated by the government’s Department of Business, Innovation and Skills, and can be disqualified from directorship for a period of up to 15 years.

For this reason, it is vital to seek insolvency advice from a qualified insolvency practitioner. 

What insolvency solutions are available to my business?

Companies can deal with insolvency in a number of ways, and these will depend on the size of the firm, the legal jurisdiction (England and Wales, Scotland, or Northern Ireland) and your exact financial circumstances. Common solutions include:
 

• Restructuring your company’s debt — in limited cases, particularly with short-term cash flow problems, renegotiating or consolidating debts can be an effective recovery solution.
• Administration — an insolvency practitioner is appointed to administer the company’s affairs.
• Company Voluntary Arrangement — a debt repayment scheme proposed by an Insolvency Practitioner and agreed with your company’s creditors.
• Receivership — for secured debts, it might be necessary to realise corporate assets to settle debts owed.
• Voluntary liquidation — the directors and shareholders can agree to voluntarily wind up the company, usually a final option but may be appropriate in some circumstances.

Where can I find help?

Most insolvency advice services have an online presence, and it can be as simple as searching for “insolvency advice UK”, or “insolvency advice Manchester”, for example, to find an insolvency practitioner in your local area.

By seeking out a qualified and experienced expert in matters of business debt, you can be sure of receiving the insolvency advice you need. 

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