When a business cannot pay its debts as they fall due, it is likely insolvent under UK law. Insolvency carries serious legal consequences for both the company and its directors, but early action can make a significant difference to the outcome. This article explores key considerations for company directors regarding the implications that can arise when their business is unable to pay its debts.<\/p>\n\n\n\n
Put simply, a company is deemed insolvent when it fails either the cash-flow test (i.e., being unable to pay its debts as they fall due) or the balance-sheet test, where its liabilities exceed its assets.<\/p>\n\n\n\n
You must always be aware of your company’s solvency. Warning signs (such as having unpaid suppliers, creditor demands or outstanding tax liabilities) can be early indicators of financial distress. Recognising these issues early on can help you make informed decisions before your company’s position deteriorates any further.<\/p>\n\n\n\n
Once your company experiences sustained financial difficulty, your prompt action is critical. At this stage, you should maintain a clear, written record of key financial decisions and their corresponding reasoning.<\/p>\n\n\n\n
You should seek urgent advice to assess your company’s position, understand your duties and help minimise your risk exposure.<\/p>\n\n\n\n
Once insolvency becomes likely,<\/a> your obligations change, and new considerations apply. You must prioritise the interests of creditors. Continuing to trade without a clear strategy to protect creditors, disposing of assets at undervalued prices or favouring certain creditors over others may lead to claims against you and result in personal liability.<\/p>\n\n\n\n When an insolvency practitioner is appointed, they can examine your conduct prior to insolvency. If they find breaches of duty or misconduct, you can be held personally liable.<\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n