Company Insolvency

Company Directors should be aware of the company's financial position and to understand whether it is insolvent or not.

There are two simple ways to establish if a company insolvent:

The Balance Sheet Test:

If the value of the company's assets are less than its liabilities then in essence the company is insolvent. Basically this means that the company closed down immediately, it cannot afford to pay all its Creditors.

The Cash Flow Test:

This is a little more subjective but if the company cannot pay its debts as and when they fall due or called upon then the company is deemed as insolvent.

Other warning signs to look out for include creditors threatening to take legal action, Debt Collection Agencies making demands for payment, legal action being taken or Bailiffs having been instructed or finally if a Statutory Demand or Winding Up Petition has been issued.

It is crucially important as a Director, that if you believe your company may be insolvent, then you seek professional support as soon as possible. Do not delay this as it may have serious implications against the Directors.

For help on this and other matters please feel free to contact us.