Updated: 26th April 2021
A limited company is described as being bankrupt when it is no longer able to pay its bills or other monthly overheads as and when they fall due. Once a company falls into arrears with creditors, the situation can quickly escalate out of control, leading to the company going bust and having to enter a formal liquidation process.
If you are worried that you could be heading for bankruptcy, you may feel as though all is lost. However, there are a number of business rescue and recovery options which can be put into place to help save your business and bring it back from the brink of going bust.
Bankruptcy is a term widely used to describe a business or an individual who is unable to pay back their debts, however, bankruptcy only technically applies to individuals (and therefore sole traders) rather than incorporated limited companies. When people talk about a company being bankrupt, they are in fact referring to a company which is insolvent.
A company is insolvent – or bankrupt – when cash flow is squeezed to the point that the business is unable to pay its outgoings on time and in full. A company can also be classed as insolvent if its liabilities outweigh its assets; this is known as being balance sheet insolvent.
If your business is already insolvent – or you fear it is on the edge of bankruptcy – there is still a chance the business can be saved. Your first step is to seek the services of a licensed insolvency practitioner who, after learning more about your company and its current financial situation, will be able to help you understand what options you have.
This may involve informal negotiations with creditors if distress levels are minimal and/or temporary; alternatively, a more formal process may be required if your business is teetering on the brink of going bust.
If your company’s financial problems are too great to be turned around, you may need to consider voluntarily placing your company into liquidation. This is done by appointing an insolvency practitioner to begin a Creditors’ Voluntary Liquidation, sometimes known as a CVL. A CVL is a formal insolvency procedure which brings about the end of an insolvent company in an orderly manner. All creditor relations are handled by the insolvency practitioner from the moment the company enters liquidation, and they will also be in charge of identifying and selling any company assets. Once all assets have been realised and distributed to creditors, any remaining money owed by the company will be written off unless any of this has been personally guaranteed.
The final step is for the company’s name to be removed from the register held at Companies House, and at this point the company will no longer legally exist. While this is never an ideal situation for a company to end up at, for a business which is bankrupt and has no realistic chance of recovery, liquidation is the best way of ensuring the company is closed in a legal, professional, and orderly way.
If your business is bankrupt or you are worried it could be in danger of going bust in the near future, the best thing you can do is to obtain the help and advice of a licensed insolvency practitioner. At Real Business Rescue we have over 70 offices located up and down the UK, so no matter where in the country you are based you are never far from an expert. For immediate support, or to arrange a completely free no-obligation consultation, contact Real Business Rescue today on 0800 644 6080.