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Company Insolvency Solicitors
When a business is facing insolvency, directors are required by law to concentrate on minimising losses to creditors, rather than maximising returns to shareholders. If your company is facing doubts over its solvency, the specialist company insolvency solicitors at JMW can provide comprehensive and practical advice to help keep losses to a minimum.
Our expertise encompasses all facets of corporate insolvency law, allowing JMW to help individuals and businesses manage every aspect of the insolvency process. We will handle each case in an efficient and time-sensitive manner, in order to deliver the best possible outcome.
How JMW Can Help
The corporate recovery and insolvency team at JMW offers a full range of company insolvency services to directors, business owners, shareholders and creditors, and have experience of working with companies of all sizes.
When it comes to insolvency, we recognise that taking professional advice early can help to avoid any claims against directors in relation to the company’s liabilities. As such, we will always work to provide timely, practical advice to directors of financially troubled companies, which makes it easier to reach a mutually satisfactory conclusion.
We appreciate the urgent and sensitive nature of any enquiries, and can quickly offer a free initial consultation to confidentially discuss the relevant issues.
What is insolvency?
There is no statutory definition of the term ‘insolvent’. To determine whether a company is insolvent, the courts will usually make reference to the relevant provisions of the Insolvency Act 1986, which refers to circumstances where either:
- The value of a company’s liabilities exceeds its assets, known as balance sheet insolvency
- A company is unable to pay its debts as and when they fall due, known as cash flow insolvency
What are the signs of company insolvency?
Directors need to regularly monitor their financial management information and remain alert to signs of their company becoming cash flow insolvent. Typical warning 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 being used for other purposes
- Landlords chasing quarterly rental payments
- Receipt of statutory demands or winding-up petitions
What should directors do if their company is insolvent?
When directors believe their company may be, or is about to become, insolvent, they should immediately seek professional advice from an expert company insolvency solicitor, accountant or insolvency practitioners to determine the appropriate next steps to take.
Directors are duty-bound to consider the formal insolvency processes available to the business in order to protect the company’s creditors.
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 of meeting 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 at undue risk. However, if the company is both balance sheet and cash flow insolvent, formal insolvency proceedings should be started immediately.
What happens if appropriate insolvency 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 or 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 also be a risk of being prevented from acting as a company director again for a period of up to 15 years.