All businesses go through periods of juggling the creditors to help with the cashflow and similar temporary financial problems at some point. When it becomes a regular problem or something that you think you simply cannot 'muddle through' again, you may be insolvent or heading for insolvency. The most important thing to do if you are in that position is not to bury your head in the sand. The creditors and problems are not going to go away, so you need to take a positive step.
The first step towards resolving your problems is to know exactly where you stand and whether you are insolvent or not. The FAQs below are the most common questions we are asked by directors.
There are 2 common tests that will indicate a Company is insolvent. One is known as the Cashflow test and is simply about whether you can pay your creditors as and when the bills become due. The second is the balance sheet test which looks at your assets and liabilities and asks if you have a positive balance at the end. The reality of insolvency can be more complex though and things are rarely as cut and dried as we would like them to be. For more information and guidance click here to read our expanded guide to whether you are insolvent.
When you reach the point where you are looking at insolvency there are several areas to prioritise.
Some of these actions are essential to ensuring you act properly in your role as a director and it is important you understand them fully. Click here for more information on what to do if your business is insolvent.
For the most part, Directors are not usually personally liable for debts incurred by the company. However, there are some situations where this may not the case. Personal guarantees are the most common of these. Click here for more information on when Directors could be responsible for company debts. More information.
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