A company insolvency can have a devastating effect on all stakeholders, from creditors to employees and directors. Creditors may lose some or all of the money that they are owed by the company, whilst employees can face difficulties in securing their wages and benefits. It can also impact the reputation of the company, making it more difficult to attract new customers and suppliers in future.
Insolvency can be triggered by a number of different factors. Whether these are external, such as legal action or a statutory demand from HMRC, or internal, such as a lack of cash flow and mounting debts. Regardless of the reason, it is vital to act fast and seek advice from a licensed insolvency practitioner to maximise the chance of turning the company around.
What is an insolvency company?
An insolvency company is a business that has ceased trading and is unable to repay its debts as they fall due. This is a serious situation that can have numerous consequences for everyone involved, including the loss of jobs and investment, as well as damage to the company’s reputation.
The insolvency process can be a long and drawn out affair, and it is important to get advice as soon as possible to minimise the impact on all parties. A licensed insolvency practitioner can assess the position of a company and recommend an appropriate course of action.
One option could be to liquidate the company, which is a process known as a Creditors Voluntary Liquidation (CVL). This is initiated voluntarily by the company directors when they believe that the company is unlikely to recover and have made arrangements for repayment of their debts. The appointed insolvency practitioner will then handle the sales of assets and stock before distributing the proceeds to creditors. The company will then be struck off the register held at Companies House and cease to exist as a legal entity.
There are other routes that can be taken, such as an Administration or a Receivership. However, these processes can take longer and are usually triggered by a court order or a winding-up petition from creditors. The appointed insolvency practitioner will then manage the sale of assets and stock, before identifying any debts that can be paid and collecting funds from employees to begin making repayments.
If you are concerned that your company may be insolvent, it is essential to seek professional help as early as possible to maximise the chances of a turnaround. Creditors should be put first, and directors should not try to conceal or hide any information that might make the situation worse.
If you are a company director, you should consider using GoCardless to automate payments and reduce the time your team spends chasing invoices. This can save you valuable time, which can be better spent on growing your business. To find out how GoCardless can benefit your business, request a demo today.