This is when a company or an individual cannot pay their debts. For a more detailed explanation, we have published a complete guide to the process which you can at Chamberlain & Co. There are two formal legal definitions of insolvency: - Balance Sheet Insolvency. This is where all the company's assets are totaled up, then the sum of the debts owed by the company are deducted from that number. If the debts are greater than the assets – then the company is insolvent. - Cash Flow Insolvency. This simple concept ascertains whether or not you can pay your outgoings on time. If you are unable to do so, then your company is insolvent.

This is a process used by a company to deal with its debts. It is the process of closing a business so that its assets can be sold to pay the debts. It is usually a terminal process where the company cannot continue trading. There are two types of liquidation: Compulsory Liquidation, which is a Court process. Anybody owed money by the company (directors, shareholders and any creditors) can apply for a Winding Up Petition (WUP) meaning the company is "wound up, forced into compulsory liquidation and ceases to trade. Voluntary Liquidation is a process where the directors of a company realise a company is unable to trade or has become insolvent and chose to place the company into liquidation. This process does not require Court involvement. In the case of a compulsory liquidation, the liquidation will initially be managed by an Official Receiver who is an employee of the Insolvency Service who responds to notifications from the courts of company liquidations and who administers the initial stages. An Official Receiver may appoint a private sector insolvency practitioner if they consider the case to be complex. A voluntary liquidation is managed by a private sector Insolvency Practitioner, nominated by the Company’s directors. Creditors can support the proposed Insolvency Practitioners appointment or elect to appoint an Insolvency Practitioner of their own choosing, should they be owed sufficient money to enable them to do so.

This is a legal procedure which allows individuals freedom from their debts, whilst providing creditors with an opportunity for repayment. It is undertaken via the courts where the Official Receiver (see above) will initially administer the procedure but, depending on the circumstances of the case, may well appoint an Insolvency Practitioner. Restrictions are placed on individuals once they become bankrupt, for example they cannot: borrow more than £500 without telling the lender they are bankrupt act as a director of a company without the court’s permission create, manage or promote a company without the court’s permission manage a business with a different name without telling people you do business with that you’re bankrupt work in many regulated sectors, such as accountancy An individual can declare themselves bankrupt, but this process is most commonly instigated by a creditor. However, if you are considering making yourself bankrupt, we strongly recommend you consult an insolvency professional to advise you on the best course of action for your situation, as an alternative may be available to you.

Bankruptcy VS Liquidation – What’s the difference?

Q: WHAT'S THE DIFFERENCE BETWEEN BANKRUPTCY & LIQUIDATION?

Bankruptcy refers to individuals only, where a Court has concluded that they are unable to pay their debts and the Official Receiver and/or Insolvency Practitioner should be appointed to deal with their affairs. Liquidation refers to companies who are unable to repay their debts.

The following article outlines the differences between bankruptcy and liquidation as well as covering several situations that may occur during the normal course of a business finding itself struggling financially.

It also offers advice on when directors should consider filing for bankruptcy or looking at another option such as an Individual Voluntary Arrangement.

However, in all instances and throughout the article, we underpin our guidance with the strong recommendation that any company director experiencing financial difficulties should consult an insolvency professional as soon as possible. An initial meeting will always be free and with the depth of their experience, it may be possible to recover a business experiencing financial difficulties. If there is a delay in seeking advice, pressure will likely mount on the company which will restrict the options available to it and make the need formal a formal insolvency / closure of the business more likely.

Chamberlain & Co have been established for over 20 years and liquidations and bankruptcies have been core services throughout. We work very closely with clients, making the process as stress-free as possible, regardless of how complex the problem. We have an in-house team of award-winning, dedicated professionals who specialise in insolvency, restructure, rescue and business turnaround.

WHAT IS INSOLVENCY?

This is when a company or an individual cannot pay their debts. For a more detailed explanation, we have published a complete guide to the process which you can find here

There are two formal legal definitions of insolvency:

Balance Sheet Insolvency. This is where all the company’s assets are totaled up, then the sum of the debts owed by the company are deducted from that number. If the debts are greater than the assets – then the company is insolvent.
Cash Flow Insolvency. This simple concept ascertains whether or not you can pay your outgoings on time. If you are unable to do so, then your company is insolvent.

WHAT’S THE DIFFERENCE BETWEEN BANKRUPTCY & LIQUIDATION?

Bankruptcy refers to individuals only, where a Court has concluded that they are unable to pay their debts and the Official Receiver and/or Insolvency Practitioner should be appointed to deal with their affairs.

Liquidation refers to companies who are unable to repay their debts.

WHAT IS LIQUIDATION?

This is a process used by a company to deal with its debts. It is the process of closing a business so that its assets can be sold to pay the debts. It is usually a terminal process where the company cannot continue trading.

There are two types of liquidation:

Compulsory Liquidation, which is a Court process. Anybody owed money by the company (directors, shareholders and any creditors) can apply for a Winding Up Petition (WUP) meaning the company is “wound up, forced into compulsory liquidation and ceases to trade.
Voluntary Liquidation is a process where the directors of a company realise a company is unable to trade or has become insolvent and chose to place the company into liquidation. This process does not require Court involvement.

In the case of a compulsory liquidation, the liquidation will initially be managed by an Official Receiver who is an employee of the Insolvency Service who responds to notifications from the courts of company liquidations and who administers the initial stages. An Official Receiver may appoint a private sector insolvency practitioner if they consider the case to be complex.

A voluntary liquidation is managed by a private sector Insolvency Practitioner, nominated by the Company’s directors. Creditors can support the proposed Insolvency Practitioners appointment or elect to appoint an Insolvency Practitioner of their own choosing, should they be owed sufficient money to enable them to do so.

WHAT IS BANKRUPTCY?

This is a legal procedure which allows individuals freedom from their debts, whilst providing creditors with an opportunity for repayment.

It is undertaken via the courts where the Official Receiver (see above) will initially administer the procedure but, depending on the circumstances of the case, may well appoint an Insolvency Practitioner.

Restrictions are placed on individuals once they become bankrupt, for example they cannot:

borrow more than £500 without telling the lender they are bankrupt
act as a director of a company without the court’s permission
create, manage or promote a company without the court’s permission
manage a business with a different name without telling people you do business with that you’re bankrupt
work in many regulated sectors, such as accountancy

An individual can declare themselves bankrupt, but this process is most commonly instigated by a creditor. However, if you are considering making yourself bankrupt, we strongly recommend you consult an insolvency professional to advise you on the best course of action for your situation, as an alternative may be available to you.

In both bankruptcy and liquidation, the individual or company director can unwittingly follow an incorrect path of action and unintentionally fall foul of offences under Insolvency legislation. A professional consultation as soon as even modest financial problems arise, can help avoid these risks, and potentially avoid an insolvency procedure altogether.

The team at Chamberlain & Co seek to provide best advice in all scenarios, and actively promote rescue and recovery in preference to terminal solutions, where they are available.

CAN YOU LIQUIDATE WITHOUT BANKRUPTCY?

Yes, as liquidation purely involves companies.

Directors are often financially linked to their company and in some instances may owe or be owed funds by the company or issue personal guarantees. This can impact on a director’s personal financial situation and if a director finds themselves struggling with their personal circumstances, independent advice should always be sought, even if they are already dealing directly with banks and creditors.

An insolvency practitioner will not seek fees if the director is already adopting the correct approach, and their services are not required. Equally, where they or appropriate professionals can add value to the client, advisory services or introductions to specialist advisors can be made.

Our recommendation for seeking early advice is that practically more avenues will be available to the individual / company to resolve their affairs without necessarily needing a formal insolvency procedure.

As highly regulated individuals, insolvency practitioners are best placed to provide this assistance and guidance.

WHEN SHOULD I APPLY FOR BANKRUPTCY?

Although debtors can self-refer and apply to become bankrupt online, we strongly recommend against filing for bankruptcy without seeking professional help.

Even if you have significant debts with no ability to pay, there are a number of options and procedures available – such as a Debt Management Plan, an Individual Voluntary Arrangement or even re-financing – which could be more appropriate to your circumstances and an insolvency professional will be able to identify these for you.

WHAT HAPPENS IF I CAN’T AFFORD TO LIQUIDATE MY COMPANY?

Any fees generated by an insolvency professional in dealing with your case, are met in the first instance by realising your assets, with the approval of your creditors. This means that the process could be self-funding dependent on the value of those assets.

In addition, and depending on the circumstances of your case, a mutually agreeable repayment plan could be established.

An insolvency practitioner will always provide an initial consultation at no charge, and any costs that would need to be met would be clearly communicated and discussed and documented in a formal engagement letter.

WHAT PREVENTIVE MEASURES CAN I TAKE TO AVOID BANKRUPTCY & INSOLVENCY?

There are a number of changes you can implement to try and save money.

The first is to look at your monthly outgoings to see if you can make some savings. For instance, look for areas where you can make efficiencies – things such as eating out less, downsizing to a smaller car or even re-mortgaging your house.

We have prepared a guide to cost savings within business which can be viewed here: How to reduce costs in business

WHEN TO CHOOSE BANKRUPTCY AND WHEN TO CHOOSE LIQUIDATION

Understandably, both personal and company financial distress can be very distressing for the individual and/or company director and place them under significant pressure.

By seeking prompt advice from an insolvency practitioner, you can be supported through this difficult process with experts who understand the pressures you are facing and have experience in working swiftly to deliver a strategy to resolve the issues you face.

Chamberlain & co free initial consultation is discrete, and can held via telephone, face to face meeting, or through a digital medium such as Microsoft Teams. All matters discussed confidentially, and the team is used to making discrete enquiries on a name basis when working with you to produce a strategy to resolve your issues.

As with all insolvency practitioners, Chamberlain & Co are committed to delivering best advice in all scenarios, and the teams work has bene recognised regularly at the Yorkshire Accountancy Awards and Turnaround, Rescue and Insolvency Awards.

You can contact us by calling 0113 242 0808; or by emailing us at advice@chamberlain-co.co.uk or by completing our online contact form here