Business Insolvency & Recovery: What Are Your Options?
Financial pressure does not automatically mean the business is finished. It does mean the position needs to be established.
A company may be insolvent because it cannot pay debts when they fall due, or because its liabilities exceed its assets. Formal and informal options can include creditor agreements, restructuring, a Company Voluntary Arrangement, administration or liquidation. Which route is appropriate depends on the facts.
The first question is therefore not: "How do I close the company?" It is: "What is actually wrong with the company, and is the underlying business still viable?"
What this means for the director
Separate a business problem from an insolvency problem. A profitable business can have a cash-flow crisis. A company with substantial sales can still be insolvent. A company under pressure from HMRC may have options. A company with no viable route forward may need an orderly formal process.
If the company is insolvent or approaching insolvency, directors should take particular care to protect company assets, consider creditors’ interests and avoid decisions that may worsen creditors’ position. Appropriate professional advice should be obtained.
What happens next
Establish the position in order: cash available now; debts falling due; HMRC position; secured lending; employees and payroll; company assets; debtors and recoverable invoices; personal guarantees; overdrawn director’s loan account (DLA) positions; whether the underlying operation can trade profitably.
Then compare the available routes. Do not choose the procedure before diagnosing the problem.
Issues to establish
Can the company meet payroll? What does it owe HMRC? Which creditors are applying pressure? Is finance secured against company assets? Have directors given personal guarantees? Is a director’s loan account overdrawn? Are there profitable contracts worth protecting? Is fresh funding realistically available? Would restructuring solve the problem, or merely postpone it? Has formal creditor action started?
Decision-path checklist
- Viable business and temporary pressure: investigate cash-flow, creditor arrangements and appropriate finance.
- Viable business and unsustainable historic debt: consider restructuring and formal rescue options.
- Viable business and serious creditor action: establish immediately what formal options remain available.
- Business no longer viable: establish the appropriate closure or insolvency route.
Questions directors usually ask
Does insolvency automatically mean liquidation?
No. Several routes can allow an insolvent company to continue, depending on circumstances.
Am I personally responsible for all company debts?
Normally, no. But personal guarantees and certain forms of misconduct can create personal exposure.
Should I keep trading?
That cannot safely be answered from turnover alone. The financial position, creditor impact and directors’ duties need to be considered.
Related authority pages
HMRC Arrears and Winding Up Petitions: What Directors Need to Know
ReadCompany Voluntary Arrangement: Can the Business Continue Trading?
ReadAdministration & Pre-Pack Administration: What Directors Need to Know
ReadCompany Liquidation: What Happens to the Directors?
ReadBusiness Refinancing & Asset Finance: Can Funding Create a Route Forward?
ReadGeneral information disclaimer
General information only. Insolvency, tax and director-liability outcomes depend on individual circumstances. Nothing on this page constitutes legal, tax or insolvency advice. Where insolvency is suspected, advice from an appropriately qualified professional should be obtained promptly.
Establish your position
Pressure is not a diagnosis. Establish the company’s financial position, the director’s personal position and the options still available.