Insolvency can be a tough time for you and your business. Just the terminology itself can be intimidating and unnerving. But it doesn’t have to be and there are ways of making the process transpire as smoothly and pain-free as possible. Business insolvency is legally defined as a company which is unable to pay its debts. This can be either one of the two; the company is unable to pay debts as they fall due, or the company does not have enough assets to cover its debts.
If your company is facing insolvency and you are struggling to pay your debts, help is available. Finding an experienced Insolvency Practitioner is extremely important but even before you book a consultation, you need to determine exactly where you stand financially.
Not sure where to start? Here are your next steps:
1. Arrange a Meeting with Your Accountant
Struggling to make ends meet in your business can be terrifying. But it doesn’t always mean that your company is to become insolvent. If you are unsure of where you stand financially, meet with your company accountant as soon as possible. To understand whether you are insolvent, there are two all-important tests: the cash-flow test and the balance sheet test. Cash-flow will help you make sense of what you can/can’t afford to pay now and what you can/can’t pay in the future, whilst the balance sheet test looks at your assets versus your debts.
2. Find a Licensed Insolvency Practitioner
Some chartered accountants are licensed practitioners for insolvent businesses. So the likelihood is, your accountancy firm may already be able to help you with your problem. Companies such as Gibson Hewitt can offer a free, no strings attached consultation so you can find out exactly what’s involved before you take the big steps.
When looking for the right practitioner, it’s important to find a trusted and reliable firm, with experience in all forms of insolvency. A good practitioner will always consider all options and will be able to advise you from start to finish.
3. Understand the Consequences of Insolvency
Insolvency can be an easy way out and can help you write off debt pressures. But it also has its ugly repercussions. Talk to your Insolvency Practitioner about the risks you could face and how this may affect you.
For instance, the business directors of an insolvent company could be at an increased risk of personal claims and directors’ qualifications. Business directors could also be personally liable if there has been any wrongful trading according to this case law. For companies still trading, there are also risks of termination of contracts from suppliers or transactions being reviewed or reversed.
4. Explore the Different Insolvency Procedures
Business insolvency can mean a lot of different things in different circumstances. No two businesses are the same – some are salvageable, some sadly are not. In some cases when a business is unable to reach a mutual agreement with its creditors, the only path is Administration. Other routes are Pre Pack Administration, Company Liquidation, Company Strike Off, Company Voluntary Arrangement, or Rescue & Turnaround.
Whether your best option is to enter into administration, liquidation or a CVA (Company Voluntary Arrangement), your appointed Insolvency Practitioner will help you choose the right path.
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