Reviewed: 3rd June 2016
It can be difficult to judge whether a company is actually insolvent, or is just experiencing a temporary lull. One of your duties as a director, however, is to understand the company’s financial situation, and act to maximise the interests of creditors if insolvency is suspected.
If you think your company’s financial problems are serious, you can apply three tests to assess how bad the situation really is, and then take appropriate action:
If you are insolvent and don’t put creditor interests first, there’s a risk of being personally liable for company debts. Finding out for certain is an important step, so we’ve put together a check list of items to help you establish your position:
If you fail one or more of these tests, you may be able to negotiate a repayment plan with your creditors. Alternatively, a Company Voluntary Arrangement (CVA) might be suitable. If you meet the criteria, a CVA would allow you to trade your way out of difficulty whilst repaying existing debt at an affordable rate.
Clearly, there’s a heavy reliance on professional valuations when judging balance sheet insolvency, and if the situation looks bleak you should consult an insolvency expert. You need to act quickly to minimise your risk of wrongful trading,
Real Business Rescue offers professional assistance in this respect. If you’re worried about cash flow, fear that you’re on the borderline of insolvency, or have already established that you can no longer pay your bills, call one of the team for a same-day consultation. We have 55 offices around the country.
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