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Warning Signs of Company Insolvency

Warning Signs of Company Insolvency need to have measures in place to check a business when it falters. Therefore, significant effort is required to stop it falling over the edge. Your focus shifts. Amber and Red lights flash. Then insolvency looms.


A company becomes insolvent if it cannot meet its financial obligations due to a cash shortage or if its assets are lower than the money it owes creditors. Insolvency can lead to business closure, so it’s important to identify warning signs early.

Company directors must understand what is company insolvency in the UK? And directors duties and responsibilities.

Do not then trade while insolvent and lose everything.

Contact HBG Advisory now. We are members of “The Turnaround Management Association“. Our team has a wealth of experience dealing with multi-million national companies to family-owned companies.

Go to your home, and arrange an online virtual meeting. Your initial meeting is free, confidential and safe.

If you would like to speak to a member of the team at HBG Advisory? Then please dial 0330 056 3120. Please be assured of confidentiality and safety during the Coronavirus COVID19 Pandemic.

Insolvency Warning Signs?

  • Dried up cash. – Insufficient cash flow. I was robbing Peter to pay Paul.
  • HMRC at the door. 
  • Day to Day Issues Maxed. – Put the fire extinguishers down and take advice.
  • Pressure from Creditors. – Daily calls from creditors, Bank and HMRC. Afraid then to answer the phone and open mail.
  • Unable to pay wages and salaries – Late payment of paying employees, and then not paying yourself.
  • Maxed Overdraft. – Overdraft facility maxed continuously. Unable to then pay creditors, waiting for monies from debtors. Therefore, the company operates less efficiently and costs creep up.
  • Secured Finance Issues. – They may appoint administrators or receivers. 

Early Warning of Company Insolvency – Why is it so important?

Directors are legally bound in their duties. However, many do not understand the importance of the protection of creditors.

Your company can then start to fail quickly. Ensure you keep up to date, therefore with financial information.

Avoid misleading any creditor. If in doubt, contact HBG Advisory on 0330 056 3120 for further guidance.

Remain at all times a responsible director.

Tests for Limited Company Insolvency

Warning signs of company insolvency need to be checked. Insolvency is cancer. It is difficult for directors legally, emotionally and financially. Keep a close eye o the test below monthly, and if one shows signs, consult HBG Advisory. Ensuring protection for creditors and directors personally.

  1. Balance Sheet Test

Liabilities. Higher than the market value of all assets.

     2. Cash Flow Test 

Insufficient cash to pay what’s due? 

     3. The Legal Action Test

Company in receipt of a statutory demand or unaffordable court judgement?

Pressure from your company Bankers

The first signs many directors consider trigger points for warning signs of a company’s insolvency are when banks start bouncing payments.

Usually the companies’ overdraft is at its limited and shown no sign of improvement.

A sign usually of an under lying cash flow issue.

Banks have extensive ways of monitoring customers who operate loans and overdrafts.

Directors will be aware of problems when their bank:-

  • Request more information on the company’s financial status;
  • Requests for overdraft increases declined;
  • Loans declined;
  • Refuse to offer an Enterprise Financial Guarantee loan;
  • Request overdraft facilities reduction;
  • Wishing to appoint external independent investigating accountants;
  • Additional security.

Litigation & Creditor Threats?

  • Unable to pay as they fall due debts;
  • Court judgements and Statutory demands received/pending;
  • Company liabilities exceed assets of the company at market value;
  • Outstanding wages & salaries.

Directors then need to watch for early warning signs of company insolvency, so they then do not trade while insolvent.

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