Only individuals can go bankrupt - not companies!
If a partnership or company cannot pay its debts, as and when they fall due, it is classified as being insolvent. For guidelines on how to check whether your firm is insolvent, visit our page on the insolvency test.
A sole trader who is carrying on as a business can go bankrupt and in effect, the business ceases to trade. We do find that many businesses are still not incorporated when perhaps they should be. Yes, incorporation can mean additional paperwork but it will protect you from personal liability of all the business's debts. Unless of course you as a director trade wrongfully and fraudulently.
If you are a sole trader in the event of a very poor trading patch, you might think that as you cannot pay your bills then you have to go "bankrupt".The IVA route is one where you agree to pay off the debts over a period of time at an agreed percentage of the debt as opposed to bankruptcy. The rules concerning bankruptcy are complex and each situation is different so you will need to take professional advice. For a guide on what partners in a firm need to look at then refer to our partnerships guide.
If the business is a company and is viable then you may continue to trade either in administration or using a company voluntary arrangement. Administration means that you will lose control of the business to the insolvency practitioner whereas a company voluntary arrangement you will not.
So what is a CVA? This is where the company agrees to pay back its creditors over time, typically 3-5 years, while it continues to trade. The arrangement needs to be overseen by an insolvency practitioner as a supervisor. We have more guides on this process than any other website! so visit our page on company voluntary arrangements if you think your company is viable.
Business bankruptcy, or its proper term, creditors voluntary liquidation (CVL)
If you feel that your business has no prospect of continuing then you need to take action. If you are worried that liquidation would have all sorts of negative implications, then take a look at our pages on what happens after liquidation for worried directors. You will be allowed to set up another company etc.
Download our comprehensive guide to creditors voluntary liquidation.