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Company Insolvency Solicitors
When the directors of a company believe that its solvency is in doubt, they are required to concentrate on minimising losses to creditors rather than maximising returns to shareholders. The solicitors at JMW can provide comprehensive and practical advice to ensure that a business’s losses are kept to a minimum.
What is Insolvency?
There is no statutory definition of the term ‘insolvent’, but the courts are likely to determine that a company is insolvent by reference to the relevant provisions of the Insolvency Act 1986, which, in turn, refers to circumstances where either:
- The value of a company’s liabilities exceeds its assets (balance sheet insolvency), or
- A company is unable to pay its debts as and when they fall due (cash flow insolvency)
Signs of Company Insolvency
Directors need to regularly monitor financial management information and to remain alert to signs of their company being cash flow insolvent. Typical examples of such signs include:
- Trade creditors being asked to wait for payment
- Direct debit payments and cheques being returned by the bank
- Funds earmarked to pay PAYE, NIC, VAT or corporation tax are being used for other purposes
- The landlord(s) chasing quarterly rental payment
- Receipt of statutory demands or winding-up petitions
What to Do if a Company is Insolvent
When the directors believe that the company may be, or is about to become, insolvent, they should immediately seek professional advice from expert company insolvency solicitors, accountants and/or insolvency practitioners with regards to the appropriate next steps to take.
Directors are duty bound to consider the formal insolvency processes available to the company in order to protect the creditors of the company.
It is important to point out that not all instances of a company being technically insolvent require the instigation of formal insolvency proceedings. For example, a company may have an insolvent balance sheet but be perfectly capable to meet its liabilities as they fall due for payment.
If a company is trading profitably, and can reasonably predict that its cash flow will permit it to meet its present and future debt obligations, creditors will not be put under undue risk. However, if the company is both balance sheet and cash flow insolvent, it is clear formal insolvency proceedings should be started immediately.
What Happens if Appropriate Actions Are Not Taken
If directors fail to take appropriate action, they could become personally liable for the debts of the company. This would be the case if the directors were found liable for or guilty of the following:
- Wrongful trading
- Fraudulent trading
- Misfeasance/breach of duty
In the event that the directors could not then meet these debts, they could find themselves being pursued into bankruptcy. Disqualification proceedings may also begin and there may be a risk of being prevented from acting as a company director again for a period of up to 15 years.
Why Choose JMW?
Taking professional advice early can help to avoid any claims against the directors in relation to the company’s liabilities. We have considerable experience in providing timely, practical advice to directors of financially troubled companies.
We appreciate the urgent and sensitive nature of any enquiries and can quickly offer a free initial consultation to confidentially discuss the relevant issues.