If your company becomes insolvent, you could be worried about the potential consequences and what you should do next. Once you’re aware, burying your head in the sand will only worsen the situation. While you may be concerned about potential longer-term consequences, failing to act will only make the situation worse and may prompt creditors to take further action. Taking professional advice can help address the situation in a timely manner and potentially achieve a better outcome for the company.
What should I do if my company is insolvent?
As soon as you’re aware that your company is insolvent, you should take insolvency advice from a licensed and regulated insolvency practitioner.
Trading on while knowing that the company is insolvent can lead to further issues during and afterwards, as can repaying one creditor before another.
Taking insolvency advice, in and of itself, won’t harm your company’s reputation, stop you acting as a company director, or get you in any sort of legal trouble. Doing so as soon as possible is the best course of action you can take, ensuring that you’re acting in the best interests of your company and its creditors.
Can’t my accountant handle the situation?
Your accountant can assist in completing documents on your behalf if you’re dissolving a solvent company. They could also advise you of your company’s position, including the health of its cash flow and balance sheet, and give you pointers as to what your next steps should be.
However, unless your accountant is a qualified, licensed and regulated insolvency practitioner, they can’t liquidate your company. Similarly, while they can recommend an insolvency practitioner for you to speak to, they can’t make an appointment on your behalf.
How do I know if an insolvency adviser is licensed?
While it might be tempting to take advice from the cheapest option available or an adviser who could promise you the world, you should always double-check whether they have the appropriate qualifications.
If an adviser is unregulated and unlicensed, they’re not bound by the same rules and regulations as those who are licensed and regulated. As such, after the initial low price, you could encounter:
- Low-quality service
- Extra costs
- Lack of due diligence
- Unwilling participation in insolvency avoidance schemes
You can check if an insolvency adviser is licensed by checking the UK government’s “Find an insolvency practitioner” tool. Additionally, every insolvency practitioner should be registered with a regulatory body that ensures their members comply with the Insolvency Act and Insolvency Rules.
Generally, a licensed and regulated insolvency practitioner will be happy to give you their credentials and give you extra peace of mind that your company is in the hands of trustworthy professionals.
How can a licensed insolvency practitioner help my company?
Unlike unlicensed and unregulated advisers, licensed and regulated insolvency practitioners can carry out one of several formal insolvency procedures, depending on what would be best for your company.
If your company has a viable business model but its burdensome debts and creditor pressure are causing problems, then it might be possible for the company to continue trading while repaying a portion of its debt in monthly instalments. This could be achieved through a Company Voluntary Arrangement (CVA).
Alternatively, if the company would benefit more from restructuring, then the insolvency practitioner may suggest administration as a temporary solution while a longer-term solution is worked on.
If creditor pressure is of such a level that continuing to trade or any kind of recovery isn’t feasible, then your best option may be to voluntarily close the company and draw a line under the debt. Closing through a Creditors Voluntary Liquidation (CVL) can help you achieve a better outcome than if the company were forced into compulsory liquidation by its creditors.
Summary
If your company becomes insolvent, acting as soon as you’re aware of the problem can help reduce the risk of further action from the company’s creditors and put you in a better position to achieve your desired outcome, which means you’re less likely to worsen the situation. While your accountant can advise on the situation, you should speak to a licensed and regulated insolvency practitioner, who can provide the best advice for your company, and avoid unlicensed, cheaper advisers. Only licensed insolvency practitioners can put your company into the formal insolvency procedure that best suits its situation and leads to the best outcome.
