Business & Corporate Insolvency Help Advice and Support Service

Written by Keith Tully

Are you having trouble paying your bills on time or are you in arrears with the taxman? If so, there is no time to lose as the directors can be accused of wrongful trading and be held personally liable! Call Real Business Rescue today so that we can determine if there is a solution to turn your company around.

If your business has been having trouble covering expenses and making repayments you may have to prepare for an insolvency procedure in order to recover from existing debts and avoid going out of business. Acting quickly to begin the recovery process is the best way to minimise the possibility of bankruptcy and get your company on the path to becoming viable once again.

How to Tell If Your Business Is Insolvent 

The term insolvency is used to describe a state of business operation in which a company is unable to meet its financial obligations. Insolvency is legally defined in Section 123 of the 1986 UK Insolvency Act. This law was enacted to protect the economy from the effects of a large number of businesses operating in debt.

A creditor can petition the courts to deem a company insolvent if it owes the creditor a statutorily demanded sum of more than £750 and fails to repay or negotiate satisfactory payment terms within 3 weeks of being served the demand. After this grace period has lapsed, the creditor has the right to take legal action and obtain a County Court Judgement that demonstrates the company’s insolvency. In order for a company to be deemed legally insolvent, a formal procedure must take place in which the courts account for the debts and financial status of the company in question. 

If you’re not sure how to tell if your business is insolvent, you may need to consult with a licensed Practioner to have your outstanding financial obligations examined. Instead of waiting for a creditor to wind up your company, you can have a licensed professional examine your cashflow history and balance sheet records to obtain a reliable indication as to whether your business is currently in danger of being petitioned into legal action.

Signs That Your Business May be on the Verge of Insolvency

While it is always possible to turn things around and regain solvency, doing so requires thorough auditing and revising of business practices. The first step is to recognise when it’s time to take action. If your company is experiencing any of the following problems you may be on the verge of becoming insolvent:

• Consistently failing to meet repayment terms
• Filing accounts and returns late, or not at all
• Having trouble obtaining new loans from creditors or extending existing lines of credit
• Regularly negotiating HMRC payment terms
• Spending more than the amount of profit earned
• Suppliers are able to qualify for trade insurance against your company
• Your bank implements new security measures, returns cheques, refuses to increase overdraft limits, requests additional information, or asks for personal guarantees
• Frequent refinancing
• Borrowing money against a separate property or asset to fund business operations

Another way to determine whether you’re close to insolvency is to use a measurement known as “debtor days,” which can be calculated by dividing the total amount of money your company is owed by all debtors by the total sales per year, and then multiplying this figure by 365.  If your debtor days works out to be higher than 85, this could be a sign that you’re in danger of being accused of wrongful & insolvent trading.

 

All of the above warning signs indicate that your company may soon have problems meeting the minimum compliance expectations listed by HM Revenue and Customs.

Weighing Informal Arrangements against Formal Insolvency 

The law mandates specific director responsibilities regarding insolvent trading; a company that is unable to meet their financial obligations cannot legally continue business without taking formal or informal action to restructure operations. If a company is found to be insolvent by the courts then they are legally required to act to maximise the interests of the petitioning creditor. A director may be found guilty of wrongful trading if they fail to take action to facilitate one of the following outcomes:

• Company sale or acquisition
• Company Voluntary Arrangement (CVA)
• Administration
• The introduction of new capital/financing to restore the company’s balance sheet to a solvent position 

According to UK law, the following formal insolvency procedures must be handled by a Licensed Insolvency Practitioner:

• Compulsory Liquidation
• Members Voluntary or Creditors’ Voluntary Liquidation
• Individual or Company Voluntary Arrangement
• Trust Deeds and Deeds of Arrangement
• Administrative Receiverships
• Administration

There are times when a company experiences problems with cashflow and after a careful examination of their books, it is determined that they’re not yet on the brink of insolvency. Perhaps a few of their bills are late, and if something isn’t done to alleviate financial pressure soon, insolvency could sneak up on them quickly. In such an instance, instead of waiting to be subjected to formal insolvency procedure, the company may find it more ideal to contact the creditors and make viable payment arrangements. Most are willing to work with you rather than go through the frustrations of dealing with the court, but it is imperative to make an accurate and honest assessment of the financial state of your company, and be realistic regarding what you’ll be able to pay in a timely manner.

You can choose to conduct negotiations and pursue an informal arrangement with your creditor(s) independently, or you can ensure a higher rate of success by utilising the business insolvency advice and assistance of a professional Insolvency Practitioner.

Selecting a Qualified Insolvency Practitioner

If you’ve determined, based on the information above, that your business has already become insolvent or is on the verge of doing so, then choosing an insolvency practitioner who is knowledgeable, experienced, and courteous should be the next step in the recovery process. At Real Business Rescue we give all of our clients a free initial consultation to help them decide whether our services are ideal for their circumstances. We attentively assess your situation to determine the best course of action in order to accurately accommodate your business rescue needs in a timely manner.

Contact Cooper Williamson Ltd (Real Business Rescue) today to find out how we can help your company turnaround with minimal effort and investment on your behalf.

 

 

Author: Keith Tully

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