What is the difference between insolvency and bankruptcy in the UK?

In the UK, insolvency and bankruptcy are related terms but they apply in different contexts. Insolvency is a broad concept that refers to any individual, partnership, or company being unable to pay its debts. For companies, insolvency may lead to administration, CVAs, or liquidation. Bankruptcy, on the other hand, applies specifically to individuals, not businesses. It is a formal court procedure where an individual’s assets are realized and distributed to creditors. Directors sometimes confuse the two terms, but it is important to note that companies do not go bankrupt; they become insolvent and may be wound up or restructured. The distinction is also crucial because the legal consequences differ. Company insolvency primarily affects directors’ duties and creditor rights, whereas bankruptcy severely impacts an individual’s personal financial life, including credit rating, asset ownership, and professional restrictions. Understanding the difference helps directors approach financial distress correctly and seek the right professional support for their situation.