While it can feel like an admission of defeat and a knock to your self-esteem, if you’re a company director and that company is struggling to pay its liabilities as and when they fall due, you should seek advice from a licensed and regulated insolvency practitioner. Doing so ensures that you’re acting in the company’s best interests, and the earlier you do, the greater your chances of achieving your desired outcome.
When and how you should take advice can seem like a complicated, daunting prospect. So, when should you seriously consider taking insolvency advice?
Your Company’s Finances Deteriorate
The most telling sign that your company is insolvent, or it could soon be the case, is an inability to pay its debts.
As a company director, you should always be aware of the company’s financial position and whether it is solvent or insolvent.
You can monitor your company’s solvent position by consulting its cash flow and balance sheet. This will highlight whether your company’s liabilities exceed the value of its assets, and whether there are any specific outgoings that it will struggle to cover.
Informal Repayment Arrangements Have Failed
If your company has small amounts of debt, your creditors might be willing to negotiate an informal repayment arrangement. However, the lack of formal recognition or oversight of these arrangements can lead them to fail, especially if payments are missed.
Additionally, while informal payment arrangements may suit companies that have one or a small number of creditors, if your company has more burdensome debts or debts to multiple parties, a formal insolvency arrangement may be more suitable.
The Company has Legal Action Against it
Legal action is a common sign that a company is insolvent. Creditors can issue Statutory Demands and County Court Judgments (CCJs) to recover unpaid debts. The creditor can take enforcement action if the judgment is unaddressed, which could include sending bailiffs or High Court Enforcement Officers (HCEOs) to recover the owed amount. Additionally, if unaddressed within the time specified in the paperwork, the judgment remains on your company’s credit file for six years, making it harder to obtain credit in the future.
In the worst-case scenario, the creditors can petition to place your company into compulsory liquidation by filing a winding-up petition, stopping the company from trading, and effectively closing it.
How to Find the Right Advice
Once you’ve recognised that your company is in financial difficulty and soon could be, or already is, insolvent, it’s important to seek out advice.
While there is a lot of advice out there, some sources may be less reliable or trustworthy than others. It may be tempting to seek out the cheapest possible advice, which is understandable if your company is already insolvent; however, doing so can lead to further issues. Unlicensed advisers may claim to offer processes or workarounds beyond those provided by their licensed and regulated counterparts. This lack of regulation and oversight can lead to a lower quality of service, hidden costs, and a lack of experience from the advisers. At worst, it could even lead to further issues after the process has supposedly concluded.
If you find that your company is insolvent, your best place for advice is a licensed insolvency practitioner. These highly trained and regulated professionals have the necessary qualifications and experience to provide due diligence and give you honest, trustworthy, impartial advice. Some may even offer a free, non-obligatory quote. They will discuss the available options, help decide which is best for your company, and answer any questions you may have, including the associated cost for each process, whether the company’s debt could affect you personally, and your future prospects once the process concludes.
To Summarise
You should take insolvency advice as soon as you’re aware of your company’s financial difficulties, when its liabilities outweigh its assets, if informal repayment arrangements have failed to alleviate those issues, or the company has legal action against it. While dwindling funds can make unlicensed advisers tempting, you should take advice from a licensed and regulated insolvency practitioner. These professionals will give you the best advice for your company’s situation and guide you towards the most effective solution.
