Identifying when your Business is Insolvent?

Identifying when your business is insolvent is simple. Ensure any decisions agreed to rely on financial accounts that are accurate and reflect the actual position on values of assets and liabilities. Three simple tests exist:

  • Balance sheet test If the companies liabilities exceed assets in value? Then Insolvent.
  • Cash flow test. This is when the business is unable to pay its liabilities as and when they fall due for payment. Then Insolvent
  • Litigation proves to be beyond the scope of business repaying once found.

If a company fails any of the three, then it is insolvent. for further help, please read ‘What is Insolvency‘.

If the business is clearly in trouble but not yet insolvent, act quickly and get help from your accountant or an insolvency practitioner. 

Advanced intrusion, enables a broader array of options for directors and their business. You may 

  • Dispose of a loss-making division of the company;
  • close down underperforming divisions;
  • explore and implement operating cost reduction;
  • negotiate new terms with creditors;
  • source additional funding; 
  • commence an informal restructuring strategy.

If you consider the business remains no longer viable, then closure remains an option.

Once insolvent, a business if a limited company has a duty for the companies directors to ensure, the companies creditors are protected along with the companies employees. Importantly bolstering the position, so the situation does not worsen.

Entering Insolvency of any sort, though does not signify the end. Many businesses can bounce back through a rescue process with the help and appointment of a Licensed Insolvency Practitioner. Many companies fail through no fault of their own. Rescue offers a second chance to companies with a viable future. Please do not leave it too late to seek help.

Trading knowingly while insolvent.

From a director’s view, you must understand the issues which arise if knowingly trading while insolvent.

For further help and guidance, please read ‘identifying the symptoms of wrongful trading’.