Company Insolvency

Company Insolvency: Understanding Your Position, Your Duties, and Your Options

If you are searching for company insolvency advice, you are probably already dealing with something that does not feel manageable. Cashflow that cannot cover obligations. HMRC pressure. Creditor calls that are becoming harder to deflect. A growing sense that something needs to change – but uncertainty about what that something is.

The first thing to understand is that insolvency is not a single event. It is a legal state that triggers specific duties for directors and opens a defined set of options. Understanding clearly where your company stands is the necessary starting point, and it is exactly what our first conversation is designed to establish.

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1. Regulated by the ICAEW 2. 30+ years of insolvency practice 3. Award-winning Firm

Is Your Company Insolvent?

In UK law, a company can be insolvent in two distinct ways – and a director does not need a court order to make that assessment. You should be doing it yourself, ideally with professional guidance.

Cashflow insolvency means the company cannot pay its debts as they fall due. This might look like consistently missing supplier payments, falling behind on PAYE or VAT, or relying on overdraft facilities that are no longer adequate to cover day-to-day costs.

Balance sheet insolvency means the company’s total liabilities exceed the value of its total assets. Even where cashflow is currently being managed, a company that owes more than it owns may already be technically insolvent.

If either of these tests applies – or if you are simply not sure – taking professional advice now is the right step, and in some circumstances a legal requirement.

Is Your Company Insolvent?

Your Legal Duties as a Director

The moment your company becomes – or is likely to become – insolvent, your legal duties change fundamentally. You are no longer acting solely in the interests of shareholders. Your primary responsibility shifts to acting in the interests of creditors.

In practical terms, this means three things.

You must not continue trading in a way that increases the company’s debts if you know, or reasonably should know, that there is no realistic prospect of avoiding an insolvent liquidation. Doing so risks a finding of wrongful trading and potential personal liability for the debts incurred during that period.

You must not dispose of company assets at an undervalue, make payments to preferred creditors, or take any action that advantages one creditor over others. These are known as antecedent transactions and can be challenged and reversed by a liquidator.

You should seek advice from a licensed insolvency practitioner as soon as you recognise the signs. This is not a formal legal obligation in itself, but it is the most effective way to protect your position – and it is something courts and regulators will look upon favourably when reviewing director conduct.

Understanding Your Options: Rescue or Closure?

Insolvency does not automatically mean the end of the business. Depending on the financial position and the underlying viability of the company, there may be a genuine path to rescue. If rescue is not realistic, formal procedures exist to close the company properly – protecting both creditors and directors in the process.

Rescue and restructuring

Company Voluntary Arrangement (CVA). If the underlying business is viable but the debt burden has become unmanageable, a CVA allows you to restructure repayments to creditors over an agreed period while continuing to trade. Directors retain day-to-day control throughout.

Administration. Administration creates a statutory breathing space that halts creditor action against the company. An administrator works to restructure the business, find a buyer for the going concern, or manage a more controlled wind-down than liquidation would allow.

Orderly closure

Creditors’ Voluntary Liquidation (CVL). When rescue is not viable, a CVL allows directors to close the company before a creditor forces the issue through the courts. A licensed insolvency practitioner realises any assets, settles creditor claims in the correct legal order, and formally dissolves the company. Acting voluntarily almost always produces a better outcome than compulsory liquidation – for directors, creditors, and staff.

Not sure which of these applies to your situation? That is exactly what our first conversation is for – no jargon, no obligation, just a clear view of where you stand.

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Expert Advice, Delivered Personally

The Insolvency Practitioners is an independent national firm led by Michael Chamberlain – one of the UK’s most experienced insolvency professionals. With over 30 years of practice and Big 4 pedigree, Mike built this firm on one belief: that directors facing financial distress deserve honest, expert advice delivered with humanity, not judgement.

Every director who contacts us speaks to Mike directly – not a junior, not a call handler. That is not something every firm can say.

“The conversation I have most often isn’t about the law – it’s with a director who knew something was wrong months ago but didn’t know who to call. That delay almost always makes things harder.”

Expert Advice, Delivered Personally

How We Work With You

Our process is straightforward and deliberately unhurried.

  1. First conversation. We listen to your situation – the cashflow position, the creditor pressure, your personal concerns. No jargon, no judgement.
  2. Honest assessment. We review your balance sheet, trading position, and creditor exposure and tell you clearly what the options are.
  3. A clear recommendation. We recommend the most responsible route – whether rescue, restructuring, or closure – and explain what it means in practice for you and for the business.
  4. Guided process. If you decide to proceed, we manage every step from instruction to resolution.

FAQ's

Is my company insolvent if it cannot pay its bills?

Possibly - but there are two legal tests. Cashflow insolvency means the company cannot pay debts as they fall due. Balance sheet insolvency means total liabilities exceed total assets. A company can fail one test without failing the other, and either can be enough to trigger director duties. If you are unsure, speaking to a licensed insolvency practitioner is the right first step.

What are my legal duties if my company is insolvent?

Once a company is insolvent, your primary duty as a director shifts from shareholders to creditors. You must avoid wrongful trading, not dispose of assets at an undervalue, not make payments that favour one creditor over others, and seek professional advice promptly. Failing to do so can result in personal liability for the debts incurred during that period.

Can I still choose a CVL after receiving a winding-up petition?

It is possible, but it becomes significantly more urgent. Once a petition is issued, control begins to slip away from the directors. You must seek professional advice immediately to establish whether a voluntary process can still be implemented before the court grants a winding-up order.

What happens to my staff if the company enters an insolvency procedure?

If the company enters a CVL, employees are made redundant and are entitled to claim redundancy pay, unpaid wages, holiday pay, and notice pay from the government's Redundancy Payments Service. In Administration, employees may be retained while a restructure or sale is pursued - though redundancies can still occur depending on the outcome.

What happens if I have given personal guarantees to lenders?

Insolvency procedures deal with the company's debts but do not erase personal guarantees. If the company cannot repay a guaranteed debt, the lender will look to you personally for repayment. We review all guarantees during our initial consultation so you understand your personal exposure before making any decision.

What is the difference between liquidation and administration?

Liquidation means closing the business and selling its assets to repay creditors - it is the end of the company. Administration creates breathing space for a restructure, a sale of the going concern, or a more controlled wind-down. Which is right depends on whether there is a viable business worth protecting.

How much does an insolvency procedure cost?

For a CVL, fees are typically paid from asset realisations rather than by the directors personally - though where there are no assets, directors may need to fund the process. Administration and CVA fees depend on the complexity and nature of the case. We provide a clear, upfront quote before any work begins.

How quickly do I need to act if I think my company is insolvent?

As quickly as possible. Director duties apply from the point of insolvency, and delay almost always narrows the options available. Where a petition has already been issued, the window for voluntary action may be days rather than weeks. Our first conversation is free and costs you nothing - but the sooner we know your position, the more we can do.

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