When we ask this question the immediate answer that springs to people's mind is the banks? Directors? Creditors? The tax man?
Well, you would be partly correct with that perm any one of 4 approach!
Of course directors have a legal obligation not to trade wrongfully or to trade when the company is insolvent and they know it has no reasonable prospect of paying its debts as and when they fall due. Witness the directors of Woolworths last week having to put the company into administration because cashflow was so bad that it could not see how to pay wages and creditors.
There are many stories of banks forcing companies into administration or receivership because the company was so distressed the banks stepped in try and control things. So yes bank's often do take part in the decision to enter insolvency (and not just their own)!
With HMRC responsible for some 60% of all winding up petitions (obviously before being told to become the next national bank for SMEs) one could argue that aggressive creditors control whether a company goes into an insolvency procedure.
But there is another force at work here. Many companies use factoring, invoice discounting and trade insurance to assist with working capital in their business. In the last 2 weeks I have been planning to write this piece because it is the TRADE INSURERS that are now controlling the future of thousands of UK companies SME or large companies.
If the trade insurer removes cover on a debtor company, your company could suffer rapidly. Last week I met with a company that had suffered a £300,000 hit to cashflow because the factoring company it used had clawed back advances against General Motors invoices.
This week I am reliably informed that suppliers to Ford have had a similar unilateral decision forced upon them. Indeed this was from an ex client who had successfully exited their CVA. Perhaps this could be rectified by Ford Motors paying in say 30 days or less, if not this could undo 3 years of hard turnaround work.
Rover was brought down by trade insurers refusing to cover their risk, Woolworths faced the same ignominy last week, others will see the same thing happen to them and usually to one of their larger customers.
Cascade this down through the supply chain and big problems lie ahead even for profitable companies.
So the answer to my question - Atradius, Euler Hermes and Coface? If you don't know these names you soon will.