Lauren Auburn
Do not be caught out if your business is heading for insolvency, says Lauren Auburn, a director at insolvency specialist BRI’s Northampton office.
Do you know when a company is technically insolvent? Here is a clue: It is not when a company enters into a formal insolvency process.
All too often directors are not aware of when a company becomes technically insolvent. Consequently they are then also not aware of the change in their fiduciary duties and responsibilities.
Section 123 Insolvency Act 1986 sets out the definition of inability to pay debts which is summarised as follows:
If a creditor owed more than £750 has served a statutory demand which remains unsatisfied.
If execution or other process issued on a judgement, decree or order of any court in favour of creditor is returned unsatisfied in whole or part.
If it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.
If it is proved to the satisfaction of the court that the value of the company assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.
It is the last two points that are considered the “common tests”, being the cashflow test and balance sheet test. Therefore, if one month, a company is not able to pay a supplier, tax bill or loan repayment then it is technically insolvent.
Next question: Do you know what a director should do if a company is insolvent?
Honestly, most of the directors we meet are not aware of what they should and should not be doing, which is why BRI recommends seeking advice at the earliest opportunity to ensure the correct advice and guidance is received.
Seeking advice from BRI does not mean that your company will close or enter into a formal insolvency process. What it does mean is that a director is better informed and is receiving help and guidance to ensure that the best decisions are made going forward and, if needed, a rescue of the business can be achieved.
At BRI we understand that it can be very difficult to ask for help but not asking for help at the right time can be the difference between a company being rescued – informally or formally – and a close-down liquidation scenario.
If you have any concerns, contact any member of the BRI team for help and guidance. We offer a free initial consultation that is also completely confidential.
01604 754352