If a business can’t pay its debts on time or owes more than it owns, it may be forced to close — but there are other options.
To be insolvent means one of two things:
This is different to operating at a loss, particularly when a business is new or growing fast.
If you become insolvent, the road back to solvency — that is, the long-term ability to pay your debts — can seem a long and hard one. There are, however, a number of support services and actions you can take to smooth this journey.
Business debt (external link) — Insolvency and Trustee Service
For advice on what to do, see Are you owed money? (external link) on the Insolvency and Trustee Service (ITS) website. To check if a company has gone into liquidation, search the Companies Register (external link) . You can also find out how to search the ITS registers (external link) for people going through insolvency.
The first thing to do is calculate your overall debt. This helps:
Gather all financial documents to get the most accurate figures you can.
A problem shared will help you find the best way forward.
By taking prompt action, you may be able to resolve matters without going to court — which may order you to take the same actions anyway. You can:
If you plan to negotiate with creditors to pay in instalments, it’s a good idea to get your accountant, lawyer or budgeting expert to help.
There are different types of involuntary closure — both apply to companies.
If a company can’t pay its debts, it may be put into liquidation, meaning all its unsecured assets are sold to repay creditors. A liquidator — often a specialist accountancy firm or occasionally the Insolvency and Trustee Service — is appointed to investigate the company, find out why it failed and sell any assets to help repay creditors.
A company can be put into liquidation by:
What happens during liquidation (external link) — Insolvency and Trustee Service
If a company doesn’t repay debt it has secured against an asset or assets, the creditor can appoint a receiver to sell the asset to repay the loan.
Receivership — often a condition of a loan agreement — doesn’t affect assets that haven’t been used to secure a loan.
A receiver is appointed to sell assets or manage the company in order to make enough money to pay its secured creditors. The receiver is responsible for paying highest priority debts first, eg unpaid wages or tax. These are known as preferential claims.
What happens during a receivership (external link) — Companies Office