How Do You Know if Your Company is Insolvent?

For any insolvent company in the U.K., there’s a legal obligation, which comes into immediate effect, to cease all trading. if your interested here is Kuwait Legalisation 

The term “insolvency” is used to describe the current state of a company’s business operations in that the company, for one reason or another, is unable to successfully maintain its financial obligations. In which case, the company’s liabilities and debts are in excess of the value of all of its assets.

In this article, we provide you with information to help you to make an assessment of your company’s insolvency. Further, we also offer advice about what you should do if your company is found to be insolvent.

Is Your Company Insolvent? Here’s How to Know

In all likelihood, your company will be insolvent if:

• Your business is in a position that it is currently unable to meet financial obligations. In this event, the probability is that your company is either late or is unable to make payments to its creditors and to the HMRC.

• The financial liabilities and debts belonging to your company are, in effect, more than your company is worth – the fair market value of the assets. The assets are inclusive of funds in bank accounts, property, equipment, debtor book, etc.

• At least one of your creditors has issued your company with a statutory payment demand which has remained unpaid for more than 21 days. Either that or the creditor has obtained a County Court Judgment (CCJ).

Your company could, should any one of the above conditions be applicable, have a winding-up petition made against it. 

If a petition has been made, to remain in business, your company must take action with immediate effect.

On the other hand, should the petition be advertised, no time may be left.

Insolvent Company: Is There Any Way to Return to Solvency?

Your company may be insolvent, but that does not necessarily mean that it must go out of business. 

There are a few options available to you in order to get the finances of your company back on track:

• Company Voluntary Arrangement (CVA)

Should your creditors be threatening to take action or if they have already started the processes involved in taking your company to court, formal negotiations can be sought via a CVA. 

CVAs come with lesser costs than other types of rescue procedures. What’s more, CVAs are, likewise, less public in nature (i.e. there is no legal requirement to disclose your company’s financial situation to clients). 

• Informal Creditors Arrangement

Prior to making any attempt with any formal process, it may be worth attempting to negotiate with creditors as a way of coming to an agreement about how to establish agreeable repayment terms. 

If successful, your company can maintain lower monthly repayments. Additionally, creditors will be more satisfied thereby allowing your company to avoid any legal action.

• Asset-Based Financing

If your company possesses assets that have a high value, these assets might be used in the form of collateral or to leverage secured financing. 

The funds made available through secured financing can then be used to successfully make creditor repayments and/ or to make contribution towards payments that are essential.

• Enter Into Administration

If your business enters into administration, a licensed insolvency practitioner is appointed. This practitioner acts as the administrator of your business and helps to successfully turn the financial outlook for the business around.

Company administration ensures that any and all legal actions currently being pursued by creditors are halted. As such, a business can be saved from going into liquidation and continue to operate as a going concern.

• Pre-Packaged Administration

Pre-packaged administration can help your company to preserve a number of its assets. 

This is achieved by allowing a third party to purchase at least some of the assets before administrators are appointed to facilitate the sale. 

Pre-packaged administration can only be used prior to the issuance of a petition. 

• Invoice Discounting and Factoring 

If your company has invoice payments that remain outstanding and that are from clients that have maintained a payment history which is reliable, it is possible to get an advance on these payments.

Either that or an ongoing credit agreement can be established via an invoice discounting or factoring company.