Insolvency can creep up on a business. If your company is encountering financial difficulties, you may already technically be classed as insolvent. When a company cannot meet its financial requirements as and when they are due to be paid, i.e. pay its wages, suppliers or HMRC on time, it is considered to be insolvent on ability to pay or cash flow basis. If a director causes a company to trade past this point he or she can be deemed personally liable for any further liabilities incurred by the company as a result.
These are the typical warning signs to watch out for in your company;
- Losing significant contracts resulting in cash flow problems
- Receiving multiple chasing letters from creditors
- High staff turnover rates
- Bailiffs attending the company property to pursue debts
- The requirement to operate at or close to the company’s bank overdraft limit
- Significant bad debts due to disputes over quality issues
- Accrued obligations with HMRC
- Trading above capacity, a lack of working capital to pursue a growth strategy, declining profit margins, but increasing sales
- Receiving a CCJ, Statutory Demand or threat of winding up
If you recognise any of these warning signs then your company may be in jeopardy: don’t panic, we are here to help. There are a few simple methods to check if your company is approaching insolvency.
- Test your cash flow
Review your financial information (cash flow forecasts / budgets) with your finance team or accountant to determine the company’s stress points. Check the company’s present cash position against expected future income compared to future commitments in order to calculate whether you will have the ability to meet future payments as and when they are due.
- Check your balance and credit with suppliers
Look into your company’s accounts with creditors; are you within your agreed credit limits, are you on “stop” with any of them or have any creditors refused to provide future supplies without payment for past supplies or before delivery? Check to see if the total sum of money owed to all creditors exceeds the company’s actual assets of the business. If the company’s liabilities exceed the value of its assets then the company is classed as insolvent on a balance sheet basis, which suggests that if no action is taken it is highly probable that it will eventually become unable to pay its liabilities.
- Legal enforcement
Has the company received or been threatened with any legal enforcement notifications, such as a CCJ or a statutory demand? If so, there is the possibility that the company is already insolvent or is facing insolvency. In such circumstances professional advice should be taken in order to protect the position of the directors and the company itself from an Insolvency Practitioner.
It is imperative that as soon as you consider your company is in danger of becoming insolvent, you contact a specialist company such as Chamberlain & Co for transparent, independent and professional advice. The sooner this is done, the more restructuring or recovery options are available to your business. It could be that if action is taken soon enough, a formal insolvency process is not required.
We know this can all be a little overwhelming. Contact one of our experienced insolvency team for an entirely confidential discussion about your situation. Chamberlain & Co have offices in Leeds, London, Sheffield and York. Call us on 0113 868 1203 to schedule your consultation today.