Glossary and Insolvency and Rescue Terms

Company insolvency

What is company insolvency?

Perhaps the easiest way to tell if a company is facing company insolvency is if they are struggling to keep up with payments to creditors.  What does this mean; if a supplier is due to be paid on 30 days and that payment is not made on time then, technically this is the sign of company insolvency.

You may argue that nearly every company is insolvent on this test! However, as a company director it will become clear where a delay in payment is necessary rather than voluntary and if the delays in payment are beginning to creep up in duration.

It is important to remember that this requirement to pay creditors on time also applies to HMRC!

If you feel that your company is facing company insolvency, then please take a look at your options explained within this website.

Company bankruptcy

What is company bankruptcy?

Perhaps the easiest way to tell if a business is facing company bankruptcy is if they are struggling to keep up with payments to creditors.  What does this mean; if a supplier is due to be paid on 30 days and that payment is not made on time then, technically this is the sign of company bankruptcy.

You may argue that nearly every company is insolvent on this test! However, as a company director it will become clear where a delay in payment is necessary rather than voluntary and if the delays in payment are beginning to creep up in duration.

It is important to remember that this requirement to pay creditors on time also applies to HMRC!

If you feel that your company is facing company bankruptcy, then please take a look at your options explained within this website.

Corporate insolvency

What constitutes corporate insolvency?

Perhaps the easiest way to tell if a company is facing corporate insolvency is if they are struggling to keep up with payments to creditors.  What does this mean; if a supplier is due to be paid on 30 days and that payment is not made on time then, technically this is the sign of corporate insolvency.

You may argue that nearly every company is insolvent on this test! However, as a company director it will become clear where a delay in payment is necessary rather than voluntary and if the delays in payment are beginning to creep up in duration.

It is important to remember that this requirement to pay creditors on time also applies to HMRC!

If you feel that your company is facing corporate insolvency, then please take a look at your options explained within this website.

Business rescue and company insolvency options

Limited Company and Limited Liability Partnership insolvency options

Insolvency options for both Limited Companies (LTD’s) and Limited Liability Partnerships (LLP’s) are largely the same.

There are a variety of options that exist for businesses facing different levels of financial pressure.  

Options exist through negotiated settlement or from legislation.

Business rescue and informal arrangements

Lack of time is always the worst enemy of business rescue. The negotiation of informal arrangements with those who are chasing the company for money can buy time for business rescue.

Business rescue is a rapid set of measures to secure the short-term position of a business.  Once secured, a longer-term view can be taken, and a Business Recovery plan can be put in place.

Cash flow problems are the most regularly seen symptom of a business in need of rescue.  The key to finding a solution will be identifying the root causes of the cash flow symptoms.

The following are formal insolvency procedures that require the involvement of a Licensed Insolvency Practitioner.

Company Voluntary Arrangements (CVA)

A process by which a company agrees with its unsecured creditors (those it owes money to) to pay back outstanding amounts in full or in part over a longer period of time.

Company Administration

A form of legal protection can be put in place through the courts to provide a shield behind which business rescue can take place.

Administrative Receivership

A creditor that holds security over the majority of the company assets can appoint a Receiver to realise value from the assets held under its security.

Insolvent Liquidation

Liquidation takes two forms: Creditors Voluntary Liquidation and Compulsory Liquidation.

Business continuity or business restart through liquidation can only generally take place through Creditors Voluntary Liquidation.

Insolvent Liquidation is just that; the liquidation of company assets to pay company creditors, usually only partially.

Striking Off and Dissolution

A private limited company (Ltd) may apply to be struck off the companies’ register if in the previous three months it has not traded or otherwise carried on business.

Application may be made using Companies House form 652.

Sole Trader and Non-Limited Liability Partnership Insolvency Options

The added complexity of operating a business within the same structure as your personal finances requires careful planning to identify the best solution.  A sound understanding of your insolvency options is crucial.

A brief summary of your insolvency options are shown below;

Informal Voluntary Arrangement

The informality of such commercial negotiation to reach a settlement with creditors (those you owe money to) has inherent benefits and problems.  This should be considered alongside all other options to see the best path forwards.

Business Individual Voluntary Arrangement

A solution provided under Insolvency Legislation, amounts owing to unsecured creditors can be settled in part or in full over a deferred period of time.

Bankruptcy

An effective, yet broad ranging solution provided under Insolvency Legislation to take away from all your liabilities and also the majority of any valuable assets that you might hold to the extent of the amount of what you owe.

Personal Insolvency Options (for those not running in business in their name)

Informal Voluntary Arrangements and Debt Management

Generally, this is a solution to deal with short term financial issues.  Solutions can be negotiated personally or the services (generally for a cost) of a debt management company can be used.

Individual Voluntary Arrangement IVA

An IVA allows for a settlement to be reached with your unsecured creditors (those people that you owe money to).  This can mean a repayment of your creditors in part or in full over a longer period of time than was originally intended.  This is one of the most heavily marketed personal insolvency options – so beware of the hard sell.

Bankruptcy

Bankruptcy is an effective yet broad-ranging solution where all your creditors are taken away from you permanently, as are any valuable assets that you hold (to the extent of what you owe).  Bankruptcy offers little commercial benefit to companies selling insolvency services – therefore make sure that Bankruptcy is one of the personal insolvency options that is explained to you.



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