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Company Insolvency Explained

Company insolvency happens as a result of a company being unable to pay its debts. There are two tests that are carried out to determine corporate insolvency. The first is the cash flow test which looks into whether the company currently or in the future will be unable to pay its debts. If there is insufficient cash to pay liabilities the company can be deemed insolvent.


The second is a balance sheet test which ascertains whether the company has more or less assets than its liabilities. If liabilities exceed assets, again the company could be insolvent.


What does this mean for a company?


There are several consequences of company insolvency:


  • The directors of a company are the at an increased risk that any actions they take could be challenged and even in some circumstances being made to personally contribute to the deficiency of the company.


  • The directors should seriously consider why the company is continued to be traded on. Directors who trad a company on whilst insolvent can be guilty of wrongful trading.


  • If the insolvent company receives a winding up petition, it will not be permitted to sell any assets and will most likely have its bank account frozen



For more information or help regarding Company Insolvency, contact our experts today at The Timothy James Partnership.

Added: 15 Jun 2017 10:02

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The Timothy James Partnership

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Insolvency Practitioners Association
About Us

We are an independent firm of specialist Licensed Insolvency Practitioners located in Bromsgrove, Worcestershire.

At The Timothy James Partnership, we work very closely with local businesses and professionals, providing guidance on formal insolvency procedures and advice on restructuring businesses.

We recognise that at times, companies find themselves in difficult financial circumstances and our aim is to provide practical solutions in these situations.