What is insolvency

In brief

Insolvency:

– occurs when your company’s liabilities exceed its assets.

– is usually identified through a consistently worsening cash flow.

– requires immediate action if you are to avoid personal liability.

What is insolvency?

Your company cannot go bankrupt, as that only happens to individuals, but it can become insolvent, where it owes more than it owns.

Being insolvent does not immediately prevent your company from trading, although its debts will be piling up. However, it is an offence to continue trading, knowing that creditors are unlikely to be paid.

As soon as you think your business may be insolvent, you should take professional advice and engage an insolvency practitioner.

There are various ways to deal with insolvency, some of which can lead to business recovery.

Insolvency is nothing to be ashamed of. It can occur for many reasons.

What are the warning signs of insolvency?

The most obvious is an inability to pay debts as they fall due. If your company is stretching its credit terms with suppliers, consistently late in paying HMRC and struggling to meet the payroll each month, it could be insolvent.

Cash flow challenges are a regular reality for many firms in today’s economic climate, but these do not necessarily mean that the business is insolvent.

However, where the cash flow worries are consistently getting worse and debts are getting larger, it’s probable that the firm is approaching, or has reached, the point where it is insolvent.

What should I do if I think my business is insolvent?

Your first step should be to contact an insolvency practitioner. They should have the experience to assess your situation and determine the true condition of your firm.

They will also be able to advise you on the most appropriate course of action, such as a company voluntary arrangement, administration or liquidation.

Each of these options can lead to business recovery, allowing you to continue trading, although perhaps under a different company. Business recovery usually involves a fresh injection of working capital.

Raising money for business recovery

If your business is to recover from a worsening cash flow or an insolvent position, it will need  a boost in working capital.

At Business Recovery, our speciality is helping firms find extra cash, often from sources they may not have previously considered. We work with a network of funders looking to invest in businesses, through various different mechanisms.

If your business could benefit from improved cash flow, give the Business Recovery team a call now, for a free no obligation chat about how we can help you.