Business Insolvency
With recent figures by PriceWaterhouseCoopers showing that more than 5,483 UK businesses fell into insolvency in the first quarter of 2009, an increase of 14 percent on the previous quarter, it is vital that small business owners are able to recognise the signs of business insolvency and act immediately and accordingly, to prevent further deterioration of their company’s financial status. Indeed, a director has a legal requirement to understand and ensure that there are enough funds available to pay liabilities when they fall due.
It is generally agreed that the stage of business insolvency has been reached either when a company is unable to pay its debts as they arise or when its liabilities exceed its assets – in other words, when it has “negative net assets”.
The Warning Sign of Business Insolvency
So how can you tell if your business is on the verge of insolvency? It’s not as complicated as you might think and there are several signs to watch out for:
- Can the company pay its debts when they become due?
It may be that you are unable to pay National Insurance Contributions and/or Income Tax payments for your employees, or perhaps you are unable to match your creditors’ payment terms of 30 days, instead having to stretch the term of credit. - Quite simply, does your company owe more than it owns?
Remember when preparing and examining your balance sheet to be prudent and realistic – are you relying upon debts being paid, which ultimately are unlikely to be collected? Are you factoring in work in progress which will not in fact be billed? Are you counting stock which is now obsolete and so unlikely to be sold? It is always better to record conservatively. - Has a county court judgement been raised against your business?
If you have been issued with a County Court Judgement by an unpaid creditor, this also indicates that you are facing business insolvency.
Act Now to Avoid Business Insolvency
If you find yourself in financial difficulty, it is vital that you act immediately to maximise your creditors’ interests. Failure to do so may result in the business being accused of wrongful trading, which may in turn lead to the directors’ becoming personally liable, if shareholder equity has become negative. This can bring forth substantial fines and a disqualification from running another business for up to 15 years.
One of the best approaches when faced with business insolvency is to make a formal offer to your creditors, proposing a structured payment plan, to pay off all or part of the debt. An application to the court for an interim order should then be made, indicating that a qualified insolvency practitioner has been appointed. Only if there is no realistic solution to the financial problem will the business be wound up by a liquidator.
This may all sound extremely negative, and there is no doubt that small businesses are facing their biggest struggle for many years. However, there are check points along the way to insolvency which will allow you to take stock and act accordingly to prevent this event occurring if at all possible, and various solutions which may be offered to companies facing financial difficulty.
How Touch Financial Can Help
Contact us on 0845 3889725 or complete one of our online quote forms. Our dedicated business insolvency team can help you spot the warning signs of business insolvency and by simply completing our quote form, we can advise you on areas where you may be able to make savings, or how you might be able to release extra funds from unpaid invoices. Our advice is impartial and you are under no obligation to make use of our services.
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