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You are insolvent if you cannot pay debts when they become due (either now or, because of some contingent liability of the business, in the future) or if your assets are worth less than your total liabilities.

There are three tests you can run to see if your company is solvent or insolvent.

1. Cash Flow Test – A company should be able to pay it’s debt as they fall due. If this is not possible your company may be insolvent.

2. Balance Sheet Test – If your companies liabilities (Creditors, Loans, Debts) exceed your company assets this means your company is likely to be insolvent.

3. Legal actions against your company – A major warning sign that your company is insolvent is receiving any letters threatening with legal actions against your company, from creditors. Such legal documents may be: Winding Up Petitions an CCJ – County Court Judgement.

In reality there are three main options you have in front of you

1. 1. Pay the entire debt. This can prove to be quite difficult if you are already facing financial difficulties.

1. 1. Do nothing – this is the worst option possible. Most likely a creditor will issue a winding up petition, and your company will enter compulsory liquidation. This is quite an unpleasant process, as an Official Receiver (Court Representative) will liquidate your company.

1. Enter a voluntary Insolvency Procedure such as CVL, Admin, CVA.

The main Insolvency Procedures are:

1. 1. Creditors’ Voluntary Liquidation (CVL) – an easy way to close down the company without having to pay all the outstanding debts

1. 1. Administration – a way to rescue the business by finding an external investor

1. Company Voluntary Agreement (CVA) – An agreement with the creditors aimed to reduce the total amount owed and to extend the timeline of the repayment

A company can be easily placed into liquidation. The first step is to have a discussion with a Licensed Insolvency Practitioner and determine a course of action. If Liquidation is the best route, the process can be started immediately. The steps for placing a company in liquidation are the following: 

1. Prepare the statement of affairs (SOA) – a document presenting the clear situation of your company, the level of debt, all the creditors, the assets level of the company and the history of your company. 

2. Board meeting – Directors of the Company meet and decide to place the company in liquidation

3. Members Meeting – The Shareholders also decide that the company should be placed into liquidation

4. Creditors meeting – the creditors meet and agree that the company should be placed in liquidation

For more details regarding company liquidation click here.

A Creditors’ Voluntary Liquidation usually costs around £6,000 + VAT. The price can vary depending on the total amount of debts and the number of creditors. 

An Administration ranges from £7,500 to £10,000, depending on the size of the business and the total amount of debts.

In a creditors voluntary liquidation the cost to place the company into liquidation may be paid from assets if sufficient.

Liquidators fees post appointment can only be drawn from asset recoveries.

The benefit of a limited company provides the director with protection against company debts.

However please contact one of our insolvency practitioners if you have signed a Personal Guarantee over a debt of the company.

The liquidator, administrative receiver, administrator or Official Receiver has a duty to send the Secretary of State for Business, Enterprise and Regulatory Reform, a report on the conduct of all directors who were in office in the last 3 years of the company’s trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a director.

Examples of the most commonly reported conduct are:

• Continuing the company’s trading when the company was insolvent;

• Failing to keep proper accounting records;

• Failing to prepare and file accounts or make returns to Companies House; and

• Failing to send in returns or pay to the Crown any tax that is due.

Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time.

There are few instances where the Directors are liable such as wrongful trading.

Each insolvency case is different and the only way to know for sure is to speak directly with a Licensed Insolvency Practitioner.

Get in touch with one of our team members now.

Yes, it is possible for a director to set up a new company although there may be some restrictions put in place by HM Revenue & Customs

Before making any decision, a director has to consult with a Licensed Insolvency Practitioner. Our team can arrange a free consultation with some of the best professionals in the industry.

Directors’ duties cease at the date of liquidation, although the director’s full ongoing co-operation and assistance is required by the Liquidator. The company’s directors must:

• Give the Liquidator information about the company’s affairs
• Provide details of its assets and liabilities
• Preserve and hand over the company’s assets to the Liquidator; and
• Preserve and hand over the company’s books, records, bank statements, insurance policies and other papers relating to its assets and liabilities.