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Is Your Company Insolvent?

Insolvency is a term used to describe a state of business operations in which a company is unable to meet its financial obligations and has debts and liabilities that exceed the combined value of all its assets.

However, the exact definition of insolvency, according to UK Law, is a bit more complicated.

Section 123 of the Insolvency Act 1986 states that a company is deemed insolvent if it cannot pay its debts as they fall due (the cash flow test) or if its liabilities exceed its assets (the balance sheet test).

If your company has had a hiccup (i.e. a customer or supplier going bust, the general economy, fraud, overtrading, litigation, withdrawal or reduction of finance) this may impair its short term viability. As a director you need to act quickly in order to survive and avoid formal insolvency proceedings such as CVA, Liquidation or Administration.

How You Can Tell if Your Business Is Insolvent

It is likely that your company could be insolvent if one or more of the following conditions apply:

• Your business is unable to keep up with its current financial obligations and is regularly late making payments to creditors or the HMRC.

• The amount of money your company owes in current and contingent debts and liabilities is greater than the fair market value of all of the company's assets (i.e. - bank account funds, debtor book, equipment, property, etc.).

• A creditor has already obtained a County Court Judgment (CCJ) or has issued statutory payment demand against the company that has gone unpaid for longer than 21 days.

If you feel that your company meets any of these conditions then you could be at risk of having a winding up petition issued against your business.

Or, if you've already received a petition, you must act immediately to avoid further consequences.

Call My Insolvency on 0800 009 6106 and let one of our advisors experienced in insolvency and turnaround matters help you. The free, confidential, no obligation call starts with our advisor gaining an understanding of your business, the problems it currently faces and your aspirations for the future of your business. We will seek to establish the real financial position and understand the pressure you are under before explaining the options available to you and your business.

Download the free guide: Is your company insolvent?

A free PDF guide for directors and owners who think their business may be insolvent.

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