When a company becomes insolvent, this means that it has debts which cannot be paid when they fall due. This is usually a result of a lack of cash flow to cover repayments and can be caused by poor financial planning, economic downturns or unforeseen business issues. Insolvency is a significant issue for any company and can put the directors at risk of personal liabilities if they continue to trade the business knowing it is insolvent.https://business-insolvency-company.co.uk
If you suspect that your company may be heading for insolvency, it is vital to take action as soon as possible. This will involve seeking professional advice, informing creditors and ceasing trading. It will also involve reviewing the company’s financial documentation to establish the extent of its problems.
Seeking Help: Understanding the Role of Insolvency Practitioners
Two types of insolvency can apply to a company; ‘cash flow’ and ‘balance sheet’ insolvency. Cash flow insolvency applies if the company is not paying its debts as they come due and balance sheet insolvency occurs when the value of a company’s assets falls below that of its liabilities.
If the company is at a point where it is unlikely to be saved, the directors can propose a Creditors Voluntary Liquidation (CVL). This involves an insolvency practitioner being appointed as a liquidator who will identify all assets and stock before they are sold off with the proceeds distributed to creditors. The company will be wound up and removed from the register of companies held at Companies House.
