Just a quick note to say a big thank you to all the staff at KSA, our CVA was passed today by creditors voting in an overwhelming number including HMRC to accept the proposal as prepared by KSA.
The road to reach today’s conclusion has been bumpy, but at each stage your team has supported and guided us through the issues and we have reached a very satisfactory outcome to the benefit of customers, staff, all creditors and shareholders.
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. Note: 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 at firstname.lastname@example.org)
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. Remember, 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 useful information on the rest of this website.
Call now if you have questions - 0800 9700539
Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.