Insolvency advice for company directors

Do I need professional insolvency advice and where can I get it from?

Running a limited company is difficult enough at the best of times, but when your business is struggling financially and has unmanageable debts, it can become hugely stressful. If your business can no longer pay its debts when they’re due, it is said to be insolvent, and that changes your legal duties as a company director.  

At this stage, seeking insolvency advice will help you act in accordance with insolvency law and avoid any adverse consequences, such as personal liability for the company’s debts. It will also give you the best chance of turning the business around. 

Here we discuss how you can tell whether your business is insolvent, what your responsibilities are and where you can get reputable insolvency advice. 

How do I know if my company is insolvent?

Your company becomes insolvent when it can no longer pay its debts. That could be due to having debts that are greater than the value of its assets or simply being unable to pay its bills when they become due. 

In practice, there are several warning signs that could indicate your company is insolvent. For example, you may receive threats of legal action from your creditors, be unable to pay staff wages or consistently be at the maximum limit of your available funding streams.  

What are my duties when my company is insolvent?

When your business becomes insolvent, there is a distinct shift in your duties as a company director. Rather than working to promote the success of the company, you must now place your creditors’ interests first and work to minimise the amount of money the company owes that it cannot repay. 

To do that, you must:

• Protect the company’s assets
• Treat all your creditors the same - you cannot pay some ahead of others
• Make sure you do not worsen your creditors’ financial position
• Seek professional insolvency advice

Why do I need company insolvency advice?

If your company is approaching insolvency or is already insolvent, seek professional advice immediately. An Insolvency Practitioner will assess your company’s financial situation and discuss the rescue options available. They range from alternative finance and streamlining to formal insolvency procedures such as a Company Voluntary Arrangement (CVA). 

On the other hand, if your company is no longer viable and has no realistic prospect of making a recovery, it will be in your and your creditors’ best interests to liquidate it. As part of the liquidation process, the liquidator will investigate the directors’ conduct during and leading up to its insolvency. If they find you mismanaged the business or did not prioritise your creditors’ interests, you could receive a financial penalty or even be banned from acting as a company director in the future. 

Seeking insolvency advice at your earliest opportunity will help to mitigate the risks of adverse consequences for you personally. An Insolvency Practitioner will be able to advise you on whether you should stop trading, the type of actions to avoid and the various steps to take throughout the process to prioritise your creditors and meet your legal duties. They can also implement insolvency procedures and act on your behalf.   

Where can I get company insolvency advice?

In the initial stages, you could contact your company accountant to discuss the business’s financial position and whether it is insolvent. They may have some knowledge of business recovery and insolvency procedures, although it could be limited. 

A debt charity like Business Debt Line can also be a good source of free initial advice. They will be able to advise you on company rescue solutions but they cannot implement formal insolvency procedures.   

Licensed Insolvency Practitioners are the only people who can advise you on and implement all the potential solutions to your business’s financial problems. They can explore alternative funding options and enter into informal negotiations with creditors on your behalf. They can also advise you on and administer formal insolvency procedures like a Company Voluntary Arrangement, Administration and Liquidation.   

Do I have to pay for company insolvency advice?

You should never pay for initial insolvency advice. Business debt charities offer a free service and most reputable Insolvency Practitioners will provide an initial consultation free of charge to help you understand your options.

At Begbies Traynor, our business recovery specialists and Insolvency Practitioners will assess your financial situation, discuss your options and present you with an action plan without charging a fee. You can then fully consider your options before you commit.

Need insolvency advice?

If you’re worried about your business’s finances and think it could be insolvent, contact our team of licensed Insolvency Practitioners for a fee-free consultation or arrange a meeting at one of our 100+ offices throughout the UK.