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Updated: 30th July 2021

Understanding your options when your company is insolvent

Rescuing your company from problematic debts and disgruntled creditors can be a stressful challenge, especially when you're not the least bit familiar with UK insolvency law or the rescue procedures available to you. Likewise, even the task of closing down your company voluntarily can present unexpected hurdles and risks without the proper preparation.

Here at Real Business Rescue we not only provide comprehensive advice and support on all matters related to business restructuring and dissolution, we also offer several services designed to assist UK limited companies.

Below is a basic overview of our services and what you need to know to go from nursing a struggling business to running a successful company:

How to Tell if Your Company is Insolvent

First and foremost, you may wondering what insolvency is and how to tell if your business is already insolvent. A company is considered legally insolvent when it is dealing with one or more of the following issues: 

  • Unable to keep up with financial obligations and has a history of delinquent payments and defaults

  • Owes a debt of more than £750 to a creditor and has failed to comply with a statutory payment demand within 21 days of being served

  • Has debts and liabilities that total more than the combined value of all company assets (i.e. - bank account funds, equipment, debtor book, tools, appliances, furniture, company vehicles, outstanding invoices, etc.) 
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No-one ever started a business thinking anything less than being a success,  but sometimes situations happen that affect a company’s success.  It’s completely normal and happens to the best of us.  Keith.Tully Partner
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What to Do Once You Find Out Your Company Is Insolvent

As soon as you realise your company is operating insolvent you're supposed to cease trading and notify HMRC and all of your creditors that you intend to cease trading. Do not take out any new loans or credits, and do not accept any new contracts or jobs from clients. Become familiar with your company director duties and responsibilities while insolvent and keep a thorough account of everything the business does. Now, this does not mean that you have to immediately end your business, as there are some solutions and procedures that can return your company to a state of solvency, including but not limited to the following: 

  • Company Voluntary Arrangements
  • Company Administration
  • Pre Pack Administration
  • Invoice Discounting & Factoring
  • Voluntary Liquidation

Company Voluntary Arrangement (CVA)

A CVA is an agreement that, if approved by the majority of your creditors, will give your company much-needed breathing space. A CVA is the formal alternative to negotiating with creditors over the phone or via email. It carries the advantages of being proposed by a licensed insolvency practitioner (thereby offering a high approval rate) and it is a legally binding contract that protects you from legal actions taken by all of the involved creditors. 

We recommend company administration when a business has significant creditors. In an administration you would appoint an insolvency practitioner to apply to the Court for an administration order on your behalf. If the order is granted no creditors would be able to take legal actions against your company and the insolvency practitioner would be able to begin acting as the administrator (interim chief executive officer) of your company with the goal of negotiating with creditors, raising as much funds as possible to contribute towards reducing the overall company debt, and ultimately facilitating a full recovery so that the company can continue operating as a going concern. 

Pre-Pack Administration

If it seems as though the business is not going to be able to recover but you would like to keep some of the company's assets and prevent them from being sold off during the liquidation sale then you could consider initiating a pre-packaged administration, in which one or more of the directors of your company would be able to purchase some of the assets from the company with their own personal funds. These purchased assets could then be transferred over to a new company that is commonly called a Phoenix. 

Invoice Discounting and Factoring

If your clients have a reliable payment history with you and your main issue is waiting on client invoices, then you may be able to turn future invoice payments into a cash advance using invoice discounting or factoring. Your company would need to meet certain criteria in order to be eligible for these services, so if you're interested in taking this route we would recommend discussing your case with one of our insolvency practitioners to learn more. 

Voluntary Liquidation

Finally, if you want to simplify the process of closing down a company and minimise the possibility of being accused of wrongful or fraudulent trading then initiating a creditors' voluntary liquidation (CVL) may be the best course of action. During a CVL you would appoint an insolvency practitioner to hold a creditors' meeting and act as the liquidator of your company. All of the assets of the business would be sold to repay as many debts as possible and the business would be eventually dissolved.  

If your business is solvent, you may be able to strike off your company rather than going down the route of liquidation. When striking off your company you must inform any relevant parties about your intention to do this. If you have outstanding creditors you should expect them to submit an objection to your strike off application which will see the process stopped. For those companies with debts which cannot be repaid, liquidation is often the best way to facilitate the closure of the business.


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