Company Insolvency

Navigating Insolvency

For directors facing company insolvency, it can be a challenging and often distressing time. However, understanding the implications and responsibilities involved can help you navigate this difficult time with clarity and purpose. If you are looking to close a limited company with outstanding debts to HMRC, an outstanding bounce back loan or debts to other creditors generally, we are licensed and regulated Insolvency Pracitioners who can help you.

Here’s what you should do:

Understand what Insolvency is

Company insolvency occurs when a company cannot pay its debts as they fall due (the ‘cash flow test’), or when its liabilities exceed its assets (the ‘balance sheet test’). Directors have a legal duty to act in the best interests of the Company and its creditors, especially when insolvency is imminent.

Dos for Directors Facing Insolvency

1. Seek Professional Advice – Engage with an insolvency specialist, such as the Team at Cheap Liquidation, for debt advice as soon as you suspect your company may be facing insolvency. We are experts at providing advice and guidance, specifically tailored to your situation. We are subject to heavy regulation by the Insolvency Practitioners Association, meaning we areduty bound to provide unbiased advice.

2. Communicate Transparently – Keep open lines of communication with stakeholders, including employees, creditors, and shareholders. Transparency can build trust and help facilitate better solutions. Creditor negotiations in particular can be daunting, but it is often the case that an honest and open approach will help. We are happy to offer advice and support in respect of these negotiations.

3. Review Financial Position – We can help you to conduct a thorough review of your company’s financial health. Understand your cash flow, debts, and potential liabilities so that you can make informed decisions.

4. Explore Options – Directors should consider all possible alternatives to liquidating companies, such as restructuring, negotiating payment plans with creditors, time to pay arrangements, or debt consolidation options to manage cash flow. The earlier advice is sought from an Insolvency Practitioner, the more options will be available.

5. Document Decisions – Keep detailed records of all decisions made and the reasoning behind them. This documentation can be crucial in demonstrating that you acted in the best interest of the Company and its creditors.

6. Act Quickly – Time is of the essence in insolvency situations. Delaying action can exacerbate the situation and may lead to personal liability for directors.

7. Prioritise Creditor Payments – Avoid repaying yourself for any money you are owed ahead of other creditors. At worst, try to maintain the status quo. An Insolvency Practitioner can advise you as to what constitutes critical payments.

8. Consider a Company Voluntary Arrangement (CVA) – This can be a viable option for companies looking to restructure their debts while continuing to operate. We are happy to discuss a potential CVA with you. Call now on 0808 5065303 for a free, no obligation chat.

Don’ts for Directors Facing Insolvency

1. Don’t Ignore Warning Signs – Ignoring financial difficulties will not make them disappear. Address issues proactively instead of hoping they will resolve themselves. Seek debt advice from regulated professionals like Cheap Liquidation.

2. Don’t Continue Trading Recklessly – Trading while insolvent can lead to personal liability for debts incurred after the Company became insolvent. Always assess the risks before making any business decisions.

3. Don’t Favor One Creditor Over Others – Preferential treatment of certain creditors can lead to accusations of misconduct. Aim to treat all creditors fairly. An Insolvency Practitioner can advise you as to what constitutes critical payments.

4. Don’t Hide Information – Concealing financial problems or misrepresenting the Company’s position can lead to severe legal repercussions.

5. Don’t Make Rash Decisions – Avoid making hasty decisions in panic. Take the time to assess the situation and consult with professionals.

6. Don’t Delay Action – Acting too late can limit your options and increase liabilities. Prompt action is crucial in insolvency scenarios.

7. Don’t Ignore Employee Rights – Employees have rights that must be respected during insolvency proceedings. Ensure compliance with employment laws and regulations.

8. Don’t Assume Personal Liability – While directors have protections, they can also be held personally liable under certain circumstances. Understand your legal responsibilities to mitigate risks.

Conclusion

Company insolvency is undoubtedly a difficult experience, but with professional guidance from a an insolvency expert, company directors can navigate this challenging landscape. By adhering to the dos and don’ts outlined above, you can protect yourself, your company, and your stakeholders during this critical time. Always remember that early intervention and transparency are key to achieving the best possible outcome. Remember, insolvency does not necessarily mean the end of the business and there are many solutions that enable the business to continue.

Call us now on 0808 506 5303 to get things started.

FAQ’s

Q: What are my legal duties as a director when my company is insolvent?

A: When a company is insolvency a director’s duties change, and they must act in the best interests of the Company and its creditors. A full summary of a director’s duties can be found here.

Q: What is wrongful trading, and how can I avoid it?

A: Wrongful trading occurs when a director continues to trade when they knew, or ought to have known that the Company could not avoid insolvent liquidation. It is a subjective test, and a full explanation is available here.

Q: Can I be personally liable for my company’s debts?

A: In the UK, a limited company is a separate legal entity from its directors and therefore generally speaking, a director cannot be held personally liable for a Company’s debts. There are, however, a number of exceptions. Click here for a full explanation.

Q: What is a Company Voluntary Arrangement and how does it Work?

A: A Company Voluntary Arrangement (CVA) is a legally binding arrangement between a company and its creditors, that allows the company to continue to trade under the control of its directors. The arrangement is ‘supervised’ by an Insolvency Practitioner. Click here for a full explanation.