Insolvency advice: A guide for limited company directors

When should I seek insolvency advice and where can I get it from?

If you’re worried that your company can no longer pay its debts and is technically insolvent, you should seek professional insolvency advice immediately.

Most companies experience periods when income falls and cash flow is short. However, if you’re struggling to pay your bills, are facing increasing pressure from creditors and there’s nothing on the horizon to resolve things, your business could be insolvent. There are two main tests for company insolvency: the balance sheet test and the cash flow test.

Why do I need insolvency advice? 

Taking professional insolvency advice at the earliest signs of insolvency is of paramount importance. Not only does this swift action increase the options open to you and your company, it also ensures you are adhering to your responsibilities as the director of an insolvent company by placing the interests of your creditors above those of yourself and your fellow shareholders.

Taking professional insolvency advice at an early stage can help you avoid accusations of misconduct and wrongful trading that can lead to personal liability issues. The most important thing to can do to mitigate these risks is to seek professional insolvency advice as soon as you think your company might be insolvent.  

An insolvency practitioner will discuss your situation with you and help you put a strategy in place to bring about a recovery. The best option may be a formal insolvency process to repay what you owe over time or to liquidate the company if it’s no longer viable. They will also advise you on the steps you can take to protect yourself from adverse consequences on a personal level.

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Where can I get company insolvency advice?

If you’re worried that your company is insolvent, there are several different places you can go for honest and reputable advice. 

• Your accountant - Your accountant will be able to advise you on your company’s financial position and may also have some knowledge of the different insolvency procedures available. They’re not specialists in business recovery but they may be able to point you in the direction of a licensed insolvency practitioner they have a relationship with
• Business debt charities - Debt charities such as Business Debt Line can be a good source of free and impartial advice. They can discuss insolvency procedures with you and refer you to an insolvency practitioner to implement them.
• Licensed insolvency practitioners - Fully licensed and regulated insolvency practitioners can advise you on all the potential solutions for dealing with your debts. They can also implement insolvency procedures on your behalf, negotiate with creditors such as HMRC and help you put a recovery plan in place.

At Real Business Rescue, our team of corporate recovery specialists, including licensed insolvency practitioners, deal with small and large companies in almost every sector. We take the time to discuss your situation with you, help you determine whether your company is insolvent and present you with an action plan to rescue or close your business. 

Our initial insolvency advice is always free, so you can fully consider your options and discuss them with your fellow directors before you make a commitment.  

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Do I need to pay for company insolvency advice?

You may find companies that offer to provide insolvency advice for a fee. Although some of these companies may be reputable, you should remember that you do not pay for initial advice. Business debt advice charities never charge for advice and some licensed insolvency practitioners - such as Real Business Rescue - offer free initial consultations. We believe everyone should be able to access professional debt advice without having to worry about the cost.

When should I seek company insolvency advice?

If you think your business is insolvent, you should seek professional insolvency advice as soon as possible. The earlier you seek advice, the more options you’ll have to rescue it. It’ll also show that you were proactive and took your duties as a director seriously, which can help to protect you from personal liability issues.   

The worst thing you can do is ignore your financial situation and continue trading regardless, as that goes against your duty to put your creditors’ interests first. If you subsequently enter insolvent liquidation or administration, the insolvency practitioner will investigate the conduct of directors and you could face allegations of misconduct and wrongful trading. 

Failing to act also increases the likelihood of a creditor issuing a Winding Up Petition against the company. The petition can force you into Compulsory Liquidation, which brings additional risks for you personally.

What advice can an insolvency practitioner give me?

The first step is to get a clear understanding of your financial position, what caused it and whether the company has a good prospect of making a recovery. To do that, we’ll need information about the company’s assets, debts, revenue and cash flow position. We also need to know who the company’s creditors are. 

We then provide tailored advice about the solutions available and the likely consequences of each option so you can make an informed decision about how to proceed. Those solutions include:

• Negotiating an informal repayment agreement with your creditors, such as a Time to Pay arrangement with HMRC
• Exploring alternative funding options like asset-based lending and invoice financing
• Proposing a formal payment plan called a Company Voluntary Arrangement (CVA) to repay your creditors over time
• Selling the business or its assets to a connected or unconnected buyer via Pre-Pack Administration
• Entering Company Administration to restructure or sell the business
• Closing the business voluntarily via a Creditors’ Voluntary Liquidation (CVL)
• Defending the company against the effects of a Winding Up Petition

Once you’ve decided how to proceed, we will take care of all creditor negotiations and provide ongoing support through the process. 

How do I know the company insolvency advice I receive is trustworthy?

Company insolvency is a tightly regulated industry. Insolvency practitioners are licensed and regulated by a professional body, which helps to ensure the highest professional standards. You can use the Insolvency Service website to check that an insolvency practitioner (IP) holds the relevant qualifications and is properly licensed. You can also use the website to find licensed IPs in your area. 

Be wary of firms and individuals that call themselves ‘insolvency advisers’ if they are not working alongside a team of licensed insolvency practitioners. Anyone can provide insolvency advice, but only licensed insolvency practitioners are qualified and licensed to do so.

Do you need limited company insolvency advice?

Are you worried your company is insolvent? Contact our team for a free, same-day consultation or arrange an in-person meeting at one of our 100+ offices throughout the UK.