What are the risks of being insolvent?
There are two legal definitions of insolvency; the first is being unable to pay your debts as they fall due and the second is your liabilities exceeding your assets. If your business doesn’t have the money or assets to pay the liabilities it owes, the company is classed as insolvent.
In more detail
In both cases, you need to make a decision whether the business can carry on. It’s very important you make a written note of your thinking at the time if you decide to carry on, especially if you do so without taking professional advice.
One key question is how certain are you that by continuing to trade the finances of the business will improve and not deteriorate?
What are the risks of being insolvent?
There are two main categories of risk by continuing to trade as an insolvent company.
- Prosecution by the Department for Business Innovation and Skills for wrongful or fraudulent trading which may lead to disqualification from acting as a director.
- Inadvertently taking on the personal liability of the debts (creditors) of the company by continuing to trade because of wrongful trading or fraudulent trading. For example, ordering goods or services you had no reasonable prospects of the company being able to pay may render you personally liable.
Why not contact us today if you are worried about wrongful trading or personal guarantees. Speak to one of our expert advisers on 0800 331 7417
