Insolvency FAQs

What is insolvency?

If bills are being left unpaid and you don’t have enough assets on your balance sheet to cover them, it’s an indication that your business is in difficulty.

For some businesses, it’s standard for there to be times when you have cash flow and times when there’s less liquidity. Insolvency occurs when you are no longer able to meet your obligations and have no prospect of doing so in the future.

For more answers to your insolvency FAQs, call us on 0800 054 6590

How do I know if my business is insolvent?

Get a better idea of your business’ solvency using these two tests.

1. The cash-flow test
Create a list of all the income that your business has. Next to this, list out its expenses. If your expenses outweigh your income – and you don’t have enough cash to pay staff, suppliers, HMRC, creditors, etc. on time and in full in the long-term – then your business is insolvent.

2. The balance-sheet test
Calculate your assets (stock, premises, equipment, monies owed, cash in the bank) and balance them against your liabilities (debts to suppliers, your bank or other creditors).
Don’t under- or over-estimate your assets or liabilities. It’s only by getting an exact picture of your company’s position that you can decide on what to do next.
If both these tests show that your business is most likely insolvent, we recommend getting professional help from a licensed insolvency practitioner.

For more answers to your insolvency FAQs, call us on 0800 054 6590 .

What does ‘pence in the £’ mean?

We’ll explain this using an example.

If you owe £1000 to your creditors, we might offer your creditors 40p in the £1 – or 40p back for every £1 you owe to them. This is 40% of the total debt.

For more answers to your insolvency FAQs, call us on 0800 054 6590 .

Am I liable for my business’ insolvency?

If you’re a director of a limited company, unless you’ve made a personal guarantee, all the liability lies in the business and not with the individuals who run it.

However, if you go through a formal insolvency process such as a liquidation, administration or CVA, your licensed insolvency practitioner has a legal duty to investigate whether the directors’ actions have caused insolvency. If this is found to be the case, there can be serious repercussions. Our article on director’s disqualification [link: Director’s disqualification article] goes into this in more detail.

If you’re a sole trader, then you have personal liability for your business debts. This can be a huge worry for people facing insolvency. But we can help. Read our section dedicated to sole traders to find out how.

For more answers to your insolvency FAQs, call us on 0800 054 6590 .

What is a licensed insolvency practitioner?

A licensed insolvency practitioner (sometimes referred to as an IP) is someone who has achieved qualifications and been licensed by a regulated body to give advice and to act on behalf of companies and individuals in informal and formal insolvency procedures.

For more answers to your insolvency FAQs, call us on 0800 054 6590

What is striking off a company’?

Striking off your company is an informal way to close it without a liquidation. Your company is eligible for a strike off only if it meets these criteria:
– It hasn’t traded or sold off any stock in the last three months.
– It hasn’t changed its name in the last three months.
– It’s not being threatened with liquidation.
– It has no agreements with creditors, like a Company Voluntary Arrangement (CVA).

For more answers to your insolvency FAQs, call us on 0800 054 6590

If I close my company, can HMRC chase me?

Simply put: yes. Which is why you need to be very careful how you close your company. If you do not go through liquidation but apply to be ‘struck off’ instead and the company has outstanding debt to HMRC, then HMRC can put it back on the register and ask the court to place the company into compulsory liquidation.

For more answers to your insolvency FAQs, call us on 0800 054 6590

Bailiff advice

If you owe money to creditors, they might instruct bailiffs to try and recover some of these funds by taking your physical assets in lieu of payment. You do not have to open your door or let bailiffs inside your home.

You’ll most likely receive letters telling you that bailiff action will be taken before they turn up. Do not ignore these letters. We recommend contacting the creditor threatening you with action, to agree a payment plan to repay the debt. If that fails, we can step in and negotiate on your behalf.

For more answers to your insolvency FAQs, call us on 0800 054 6590

Can I force a company to pay money it owes me?

You may have tried and failed to get a company to repay money that it owes you for goods or services rendered. Your next step is to consider a ‘winding up’ petition.

To do this, you’ll first have to show the court that the debt is due. This is important as your petition could be rejected if the debt can’t be proved. This proof will usually need to be a County Court Judgement (CCJ) and/or a Statutory Demand, neither of which have led to the debt being settled.

To present a winding up petition in court you’ll need the services of a solicitor.

For more answers to your insolvency FAQs, call us on 0800 054 6590