Insolvency Advice Centre - Insolvency Helpline

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Introduction to insolvency

Insolvency means the inability to pay ones debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.

  • An individual is insolvent if he or she is unable to pay ones debts as they fall due (including future debts),
  • The company is insolvent in its inability to pay ones debts as they fall due (including future debts). This is known as cash flow insolvency,
  • The company is insolvent if the value of its assets is less than its liabilities (balance sheet basis). This is known as balance sheet insolvency.

Insolvency may occur due to

  • Loss of market.
  • Lack of working capital.
  • Failure of suppliers.
  • Customer debt.
  • Mismanagement.

If you own a company facing insolvency the following formal procedures will apply.

  • A voluntary arrangement may be entered into between the company and its creditors,
  • A scheme of arrangement may be effected,
  • An administrator may be appointed,
  • An administrative receiver or receiver may be appointed,
  • The company may go into liquidation or bankruptcy.

There are distinctly different end results dependent upon the procedure followed. Some result in rescue, restoration and growth of your company while others result in liquidation.

An official receiver will normally handle the early stages of a bankruptcy or compulsory liquidation. If there are significant assets, an insolvency practitioner may be appointed in place of the official receiver. All other insolvency procedures apart from voluntary arrangements and debt relief orders will be handled by the insolvency practitioner.

Official receivers are civil servants in the Insolvency Service.

Insolvency practitioners work in the private sector. They are usually accountants or solicitors and are required by law to be authorised to act as insolvency practitioners.

Official Receivers and insolvency practitioners will identify the symptoms of insolvency.
The official receiver will submit to courts any reports as he or she think fit and maintain priority of payments to claimants. The insolvency practitioner will rescue, restore and grow the business.

The company may still trade during insolvency procedure. This will only be through the signature of the insolvency practitioner.

If you own a business or are a partner in a business that is facing insolvency you should consider taking advice from an insolvency practitioner. The symptoms will be identified and advice forwarded upon the implications of the various solutions.

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This website has been written and intended for registered limited companies in the UK only. The site contains general information and resources for limited companies only in financial trouble. Insolvency Helpline only work with limited companies to offer solutions for their business debt problems. Insolvency Helpline cannot offer help or advice any other entity except limited companies. Insolvency Helpline does not advise individuals, sole traders or partnerships seeking debt advice. If you are an individual, sole trader or partnership seeking advice, we recommend using an alternative service.

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