An insolvency practitioner can step in to help businesses when they are going through financial problems. They will take steps to try and save the enterprise, acting in the best interests of the creditors in everything they do.
If you believe that your business may be facing insolvency, it is crucial to seek immediate legal advice. A company is insolvent when:
- It cannot meet its debts when they are due; or
- Its liabilities exceed its assets
A director owes a duty of care to a company’s creditors when facing insolvency. Directors are required to cease trading when they realise that a company is insolvent or they believe that insolvency is inevitable. If they fail to do so, they can become personally liable for the company’s debts and may face penalties, including imprisonment.
By putting an insolvency practitioner in place, you reduce the risk of personal liability and give your business the best possible chance of being rescued.
What do Insolvency Practitioners do?
An insolvency practitioner can advise on options that may be open to the business. This could include:
- Contacting creditors to try to reach an informal agreement on payment
- Restructuring the business
- Entering into a company voluntary arrangement
- Putting the company into administration to delay creditor action to rescue or sell the company
- Appointing a licensed insolvency practitioner as a monitor to oversee a moratorium to delay creditor action so that a business can take advice on restructuring
- Dissolving the company
Difference Between an Insolvency Practitioner and a Liquidator
A company that is being liquidated, ie. its assets sold, is not necessarily insolvent. An insolvency practitioner needs to have an insolvency licence and is authorised by a regulatory body.
A liquidator is an authorised insolvency practitioner or an official receiver who will deal with liquidating the company’s assets as well as issues such as paying creditors and informing them of the progress of the liquidation, interviewing the directors over the failure of the business and dealing with outstanding contracts and legal disputes.
Insolvency Rules
Directors should make sure they know whether or not their company is insolvent. If they have concerns, they should seek professional advice to establish the company’s position.
Trading while insolvent is a serious offence, punishable by a fine and/or imprisonment.
Wrongful trading is trading when a director knew or should have concluded that there is no reasonable prospect of a company recovering. At this point, a director should act in the best interests of the creditors. They should not take on further debt and should take steps to minimise creditor losses.
Insolvency rules can be complex and it is important not to breach them. Each action has its own set of requirements, such as the required number of votes to pass a motion and notice periods before action can be taken.
At Witan Solicitors, we provide insolvency advice and if your business is facing difficulties, we can advise you of your options.
The Role of Solicitors in Insolvency
An experienced insolvency solicitor can be invaluable in helping companies and individuals through this difficult period. They will advise on the best way forward and how best to protect your rights and interests. They will have a wide range of understanding across several sectors of related law, including corporate law, tax implications, employment law and property.
Work they can undertake includes:
- Negotiating with creditors over payment of debts
- Recovering money owed to the company
- Advising on ways in which the company could potentially be saved
- Advice on restructuring
- Dealing with administration or bankruptcy procedures
- Advice on protecting assets
For information about the services we provide, see our insolvency and bankruptcy solicitors page.
Contact our Insolvency Solicitors
If you are dealing with financial difficulties in your business, you are strongly advised to speak to an insolvency solicitor as soon as possible. Prompt action can offer some protection and give your organisation breathing space to consider the best way forward. We can advise you of the options available to you and take urgent action to protect you and your business where necessary.
If you require the services of our adept insolvency lawyers, there are several ways to contact us. You can email us at info@witansolicitors.co.uk, or complete our contact form, and we will engage with you to discuss your situation and determine how we can provide assistance. We have offices located in Birmingham, Northampton, and London.
