How to Know If a Company is Insolvent

Whether you are a director or creditor of a company, you should be aware of the various options available to creditors should a business fail. If a company is insolvent this means it can no longer pay its debts and should be closed down. It is important to identify the signs that your company may be insolvent before it gets to this stage, otherwise it could be too late and you might not get your money back.

Poor cash-flow is often the first warning sign that your company is in trouble and may be heading toward insolvency. This can be as a result of a loss of customers, overdue trade supplier payments or creditor pressure.

When a Company Is Insolvent: What It Means and What to Do Next

You should also consider if your customers are taking an increasing amount of time to pay you which can be a sign that they are struggling with cash flow themselves. You should also watch out for a rise in debt collection costs, threats of legal action, refusals of new credit, and creditors refusing to extend payment terms – these are all clear indications that your company is in financial distress and should be considered insolvent.

If your company is trading at a loss and its liabilities exceed its assets then you are deemed to be insolvent. In this case, you have the option of entering a Company Voluntary Arrangement (CVA), Receiversship or Compulsory Liquidation. If you are considering any of these options, it is worth seeking the advice of a licensed insolvency practitioner who can help you.