Sometimes businesses find that the market faces a slump, projections don’t work out quite as they were forecast, or there are blocks in the road that make insolvency the best or only option.
You shouldn’t think of this as the end of your journey as a business owner – rather, it is a tough but sometimes necessary decision that can actually give you the perspective you need to start over.
However, if you do think insolvency is right for your current company, it’s important to make sure that you’re coming from a strong position, which is to say an awareness and knowledge of the process ahead of you.
Equally, understanding what the insolvency process involves can help ease any stress or concerns that you may have as you decide to move forwards with it.
So What Does Insolvency Actually Mean?
Insolvency happens when you can no longer make the payments that are owed to lenders or creditors.
What are Insolvency Practitioners, and When Might a Company Choose to Approach Them?
Insolvency Practitioners can assist in formal insolvency proceedings – and are qualified, licensed and authorised to do so.
There are a number of reasons that a company or SME may choose to approach them, including:
- Cash flow problems which cannot be solved through a round of funding.
- Directors no longer willing or able to support the company – whether due to illness or death, or any other factors.
- Loss of an important customer.
- The business not advancing as planned, whether due to changes within the industry, changes with the competition, an unsuitable business plan, changes to legal regulations or a cash flow management issue within the company itself.
- Fines, for instance from health and safety breaches; issues caused by fraud committed within the company; or payments ordered regarding long-term litigation.
If you want to read the full list of insolvency FAQs (that we used to create this article) check out this very useful page on the Mackenzie Goldberg Johnson website found here.
Can the Issues Above be Avoided?
With enough foresight, many – although not all – of the concerns listed above can be avoided, or at-least limited.
How Can New Businesses Better Prepare to Avoid Insolvency?
There are a number of important factors, most of which come down to proper planning at an early stage.
These include considering issues that might occur further down the road, preparing a strong business plan, and taking advice when required.
The Insolvency Process
How Long Will the Process Take?
It is difficult to put an exact time-frame on insolvency proceedings, as they will be different depending on the specific situation involved. This means that it can be anything from several months to several years, and should be considered on an individual basis.
When is it the Right Time to Think About Insolvency?
You don’t need to be sure that insolvency is the right route to start thinking about it as an option, so getting advice early is often a good idea. It will also give you the chance to consider all of your options, and any possibilities for avoiding a formal insolvency process.
What Will Happen to the Money that a Company Owes?
During insolvency proceedings, an insolvency practitioner will deal with creditors on your behalf. After the company’s assets have been sold, they will notify the creditors who will generally receive a dividend from the funds raised through this sale.
How Does Insolvency Affect Staff and Wages?
There are two different processes which may happen: the staff may be moved to another business, who would then become responsible for those employees’ pay; or they may be made redundant, which would mean responsibility falling to the Redundancy Payments Office.
How Will Insolvency Affect Me, Personally and as a Director?
Your personal assets will generally only be affected if you are acting as an individual or a partnership, or if you have made a personal guarantee for your business. At the point that the company’s assets are sold, your responsibilities as a director will end and, assuming you have not been disqualified for illegal activity or wrongdoings, you will still be able to run future companies.
Payments to the insolvency practitioner will generally be made from the sale of the business’ assets.
If you feel that insolvency could be the right course of action for your business, you might want to seek further advice from an insolvency practitioner to get things started.