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If your company is unable to keep up with debts and end up falling into financial difficulty, chances are it will become insolvent.
This means that it has entered a crucial legal phase where the company is in danger of shutting down completely through liquidation, but will have the opportunity to save the company through negotiation with creditors or financiers who have an interest in supporting the company for the immediate future.
What is insolvency?
A company officially becomes insolvent when it is unable to pay bills, and it has more liabilities than assets on its balance sheet. Either of these circumstances mean that the company is unable to continue trading without incurring further debt and has become financially impractical to keep running.
Therefore the company will need to enter insolvency proceedings according to the Insolvency Act 1986. Usually this involves one of the following outcomes:
- Reaching an agreement with creditors or financiers to receive more investment
- Enter into a Company Voluntary Agreement (CVA)
- Hand over your company to an insolvency practitioner and put the company into administration
- Closing the company down
The insolvency procedure
Reaching insolvency can mean there has been some serious mismanagement by the director, or the company has failed to maintain sales and has started to lose money.
The procedure of entering into insolvency via a practitioner or other means can be stressful not only for the director of the company but also for the employees who will worry about their future employment. Alongside trying to find a way to keep the company going, there is also the added pressure of any actions being taken against the company in the form of creditors recovering debts. It can be a drawn out process of trying to save the company from liquidation through tough negotiation with creditors and financiers that can last months from the start of the insolvency.
Contact DPP Business & Tax Solicitors
Whether you are looking for an insolvency practitioner to put your business into administration or you are making a claim against an insolvent company, the specialist business solicitors at DPP Business & Tax can help.
Contact our expert team today and find out more about insolvency and how DPP Business & Tax can help you.