How does your company become insolvent?

Your company becomes insolvent when it reaches the point of not being able to pay its debts as they fall due – e.g. not paying PAYE on time, missing a payment on a loan, or not paying a trade supplier when you should. The point of insolvency flashes like a beacon if you get a CCJ or stat demand.

Your company could also become insolvent when its assets are less than its liabilities because it means if all its assets were sold there wouldn’t be sufficient funds available to pay all the liabilities.

When your company becomes insolvent, you have a fiduciary duty to its shareholders, creditors, employees and fellow directors to seek advice on the best course of action. It may be this advice is no more than preventative or cautionary, as you may be able to avoid any further problems and return your business to solvency, but you should bear in mind that if you can’t your actions from the point of insolvency onwards will be looked into and worst case scenario you could be personally liable for transactions you have caused your company to enter into.

The saying, “Early detection and/or prevention is better than cure” is absolutely right when it comes to your business, so if you can recognise that your company is insolvent from this brief article, contact us for help and advice to deal with the insolvency of your company.

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