“Should I be concerned about insolvency?”

Trading while Insolvent

While there are four tests to determine whether a business is insolvent, the key is to be clear about the viability of the business and its prospects of survival.

Insolvency does not mean that a company must cease trading immediately or that it will go under, however extreme caution is needed if it is to continue trading. Action is needed and evidence of the decisions that justified the actions may have to be produced if the company subsequently fails. The key principle is to consider creditors’ best interests as a priority over those of shareholders’.

Remember that if you don’t act correctly, as a director or person in charge of an insolvent business you can be held personally liable for its debts. Our free downloadable Directors’ Guide explains the issues you need to be aware of and how to trade while insolvent.

You should immediately take advice on your options, but beware biased advice and make sure you know whom your adviser is really working for and how they get paid. While K2 avoids any conflict of interests by working for you as business owners, licensed insolvency practitioners tend to be conflicted as they normally start off working for you but will transfer their allegiance to banks and creditors if they are appointed under a formal insolvency procedure.

If you want to save your business speak to K2 as we are not conflicted and our obligation is to you the business owner
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For more detailed information about Trading While Insolvent please download our free Directors Guide

Insolvency Explained

There are four primary tests for insolvency:

  • Cash Flow Test – can the company pay all its debts as they fall due?
  • Balance Sheet Test – are the total liabilities of the company greater than its assets?
  • Unsatisfied Judgement Test – has the company an outstanding Court Judgement against it?
  • Statutory Demand Test – has the company received a Statutory Demand that is either due having not been paid, or is not due and has been disputed?