Corporate Insolvency

When a business finds itself in a position where debts are greater than assets, corporate insolvency is a viable choice. Understanding how to get there and what steps a business can take is crucial.

Insolvency is an encompassing term, and one which many people get confused by. It helps to know what exactly insolvency means, how a business is designated as such, and what practical solutions are available.

Hillcrest Finance can help any business facing corporate insolvency. Our licensed insolvency practitioners can get to know any business and seek out measures to see if a business can be saved.

Corporate Insolvency advice

Corporate insolvency in the UK covers a wide range of services and processes. For example, two identical companies in insolvency proceedings could end up with two completely different outcomes, i.e. one could get a CVA while the other could enter liquidation.

A comprehensive understanding of company finances and seeing what the best path is will require the help of an insolvency practitioner(IP).

The difference between insolvency and bankruptcy

It helps to know that when we are dealing with corporate/ business interests, it is best to refer to proceedings as insolvency. If someone is talking about bankruptcy, they should be referring to personal debt problems. For more information on bankruptcy, click here.

How does corporate insolvency work?

The corporate insolvency procedure usually starts with a business’s directors deciding to place the company in insolvency. With there being different types of insolvency, it is up to an insolvency practitioner (IP) to figure out which option is best.

To get there, a company will typically start the corporate insolvency process after checking if they tick all the boxes on two informal tests: the cash-flow test or balance sheet test. If a company is seen as unable to pay debts (cash flow), or its asset won’t cover current & future liabilities (balance sheet), it will be deemed as being insolvent.

A company may also be declared insolvent if it can’t pay £750 from a creditor after a formal demand, or a Court Order hasn’t been undertaken. In these instances, insolvency is declared by an outside party.

Who does insolvency benefit?

Insolvency has certain benefits for debtors and creditors. For those running the company (debtors), insolvency can help rescue a company if it has a chance. For debtors, insolvency is a means to get as much debt back as possible, as it has lower costs than if a company goes straight into liquidation.

Are there different types of corporate insolvency?

Yes. Corporate insolvency is an umbrella term for several different procedures and statuses. When a company is insolvent, solutions they may be advised to consider can include:

Typically, advice from an IP can help a company understand which course of action is worth taking. Remember, a company must talk with an IP to ensure they don’t wrongfully trade while insolvent.

Advantages of corporate insolvency

Insolvency can help a business in some ways:

  • Debt/liability lies within company assets
  • Creditors can’t take legal action
  • Staff are better protected if sales measures are to go ahead

Disadvantages of corporate insolvency

Insolvency can hurt a company in some ways too:

  • There may be some personal liability for company debts
  • Directors are responsible for overdrawn accounts
  • Loss of assets to cover debts
  • Staff will become redundant if liquidation measures are to go ahead

What happens if a company is deemed salvageable?

If your IP has looked at all the information and is hopeful, they may recommend administration, or a company voluntary arrangement (CVA) is set up as a preventative measure.

What happens if a company is deemed unsalvageable?

When all factors have been considered, and the outlook isn’t hopeful, it is common for liquidation proceedings to commence. You can find out more about how Hillcrest Finance can help with liquidation here. It is important to note though that insolvency will not always lead to liquidation.

Will I have to give up assets if my company is insolvent?

Only assets belonging to the business are included when insolvent. On the chance that a company director has made a personal guarantee to a customer or client, those assets may be affected. However, a director who knows they’re insolvent cannot sell company assets to reduce personal debts.

Get advice on dealing with corporate insolvency

Corporate insolvency can be a tricky road to navigate without the right help. If this is an area you feel you need help with, please get in touch with Hillcrest Finance today.

Call our advisors on 0141 478 0862. Lines are open weekdays from 8 am.

Get in touch with us about Corporate Insolvency today