Is my company insolvent? Worried Directors Guide

We're under a lot of pressure, but is our company insolvent?

So how do you know if your business is insolvent? You may have studied the warning signs pages and learned that apparently insignificant issues can lead to business failure when combined.

Read this page and it will tell you whether the company is insolvent or not.

If the company is insolvent, you must act to MAXIMISE CREDITORS INTERESTS. Failure to do so could lead to personal liability for the company's debts.

There are three key tests for insolvency of a UK company or LLP:

The cashflow test for insolvency

Simply - can the company pay its debts when they fall due? 

For example, if your company is not paying the deductions from employees for NIC and Income Tax across to HMRC on the 19th of the month following the month they were deducted, then the company could be insolvent.  This has of course now changed as a result of RTI in that PAYE is paid across to HMRC in real time. However, the company may have built up arrears in the past.

If trade creditors sell to the company on say 30 days terms and the company regularly pays on 90+ days, then this could mean the company is insolvent. 

A director has a legal requirement to understand this issue. If you believe that the company has insufficient cash to pay its liabilities on time you must take action

So if the company is insolvent you as the directors must act to MAXIMISE CREDITORS INTERESTS. Failure to do so could lead to personal liability for the directors.

The balance sheet test for insolvency

Simply - does your company owe more than it owns as a company, or are the company's assets exceeded by its liabilities? If yes, then the company could be insolvent. 

 (If you need advice on these issues email us athelp@ksagroup.co.uk). 

Many directors tell us that on a balance sheet test the company is not insolvent therefore they do not need to act. However, under the cashflow test above the company may still be insolvent. So you must act properly if it is. So if the company is insolvent you as the directors must act to MAXIMISE CREDITORS INTERESTS

. Failure to do so could lead to personal liability for the directors. Call now if you have questions - 08009700539 or 020 7887 2667.

The legal action test for insolvency

If a creditor has obtained a County Court Judgment, this may demonstrate the company's insolvency and the creditor might petition to wind up the company. (See compulsory liquidation)

If you believe that any of the above tests are positive for your business, it is vital that you and the board of directors take action to address the insolvent position. However, don't panic. Look carefully at all pertinent issues and consider the rest of this website.  Remember, if the company is insolvent, you must act to maximise creditors interests. If there is no reasonable prospect of the following happening then the directors may be accused of wrongful trading: 

So how do you know if the business is insolvent? What are the tests? Watch our video and it will tell you how to check if your company is insolvent or not.

If you are worried about this or your accountant has said he/she is concerned then look carefully at directors disqualification.

So if the company is insolvent you must act to MAXIMISE CREDITORS INTERESTS. Failure to do so could lead to personal liability for the directors.

Call now if you have questions - 0800 9700539