Here we look at some frequently asked questions about company insolvency.
When is a company considered insolvent?
Under the terms of the 1986 Insolvency Act a company is deemed insolvent if it does not have sufficient assets to cover its liabilities or cannot meet them when they fall due. Directors can apply for a company to enter insolvency but creditors can also apply to the courts to force the procedure.
If you are concerned about a company’s ability to meet its financial obligations, you can see its latest filed accounts at Companies House.
What is administration?
This is a procedure involving an independent professional who takes over the management of a company which is insolvent and attempts to make it viable, seeking the optimum returns for creditors. A moratorium on creditors attempting to recover their debt applies at this point. If the administrator cannot rescue the company, liquidation or winding-up may occur.
What is liquidation?
This occurs when the administrator closes an insolvent company, liquidating the assets to pay creditors in a specific order. This can be done through a creditors voluntary liquidation or compulsory liquidation ordered by the court through an appointed liquidator.
A London law firm can advise on these options and you can search online for firms such as www.forsters.co.uk to help with this.
Will I recover debts owed by the company?
When assets are sold, creditors are paid in order as set out in law. Creditors from each class of the hierarchy are paid before the next class accesses funds. Accordingly, lower ranking creditors may not be paid.
