A company is declared insolvent when it can’t pay its debts especially when the bills are due and when there are more liabilities in the balance sheet than assets. Such a company is in danger of being closed down but the directors can pursue actions that allow the company to continue trading.
How To Deal With Company Insolvency
- Once a company is declared insolvent, the directors can pursue the following actions.
- Contact the creditors and try reaching an informal agreement
- Enter into a company voluntary agreement
- Enter the company into administration by offering some respite from the creditors allowing the company to continue trading or the company’s assets to be sold.
- Winding up the company by closing it down and selling the assets and the proceeds distributed to the creditors.
The creditors have some valid actions they can take against the company such as recovering the debt by getting a court judgment first or issuing an official request for debt payment (a statutory demand). Once the creditors have done this, you can protect the company from liquidation. Of course, if the creditors can’t recover their debts through these methods, then they can get apply for compulsory liquidation of the company.
As the company owner or director, you can stop the winding up order from going into action by entering into administration. However, the creditors can also seek to put your company into administration. There are some options that allow your company to stay running. For instance, you can make an informal agreement with the creditors allowing you to pay your debts on different terms.
Such an agreement would come in handy if you are experiencing financial difficulties temporarily. It’s prudent to contact the creditors immediately you are aware of the financial difficult so you can draft a payment plan and understand the costs involved with the repayment plan such as how it would affect your payment of interests. Remember, the informal agreement is not binding at all and the creditor can always withdraw the agreement when they wish to do it.
Secondly, there is company voluntary agreement where you agree with the creditors to pay part or all the debts within a certain period. Once the period is exhausted and all the debts are paid, the company can continue trading normally. With administration, you are required to hand over the leadership of your company to an administrator or insolvency practitioner for best bankruptcy advice. With such a move, the creditors can’t proceed with any legal action against the company without the court’s permission.
The administrator will come up with proposals that can restore the viability of the company, create an agreement with the creditors and much more. The creditors can either agree or decline these proposals. The company can also go into administrative receivership where the receiver will find ways to recover money to cover the company’s costs, the creditors’ debts and much more.
Finally, with liquidation, the company is closed immediately and the liquidator makes sure the contracts are completed, transferred or ended as well as any other business such as legal disputes and much more.Posted on