Business insolvency

Business insolvency occurs when a business becomes unable to pay its debts. It is worth noting that a sole trader or a partnership becoming insolvent is different to when a company becomes insolvent. When a sole trader or partnership becomes unable to pay its debts, the liability for the debt ultimately rests with the individual, or group of individuals, who are running the business. Insolvency for a company stays with the company because of ‘limited liability’. A company is a separate legal entity to the people who are running it and as a result, if a company is unable to pay its debts, liability for these debts does not pass to the directors. Only in cases where a director has made a personal guarantee to creditors will they become responsible for the relevant debt.

If a company is unable to pay its debts, there are several rescue measures available to try to prevent the company going into liquidation, or at least maximise the money available for creditors. The Insolvency Act 1986 introduced Company Voluntary Arrangements and administration orders.  An administration order allows a person appointed by the court to manage the company. The aim is either to rescue the company and restore it to normal trading (protect the business from insolvency), or to ensure better realisation of assets. Company Voluntary Arrangements are agreements between the company and its creditors to either reduce the debt, or allow longer for payment of the debt. The aim is to allow the company to continue to trade and to obtain a better result for creditors than liquidation.

If you would like to obtain legal advice on business insolvency, Contact Law can put you in touch with a local specialist business insolvency solicitor free of charge. So, if you have any questions or would like our help in finding local business insolvency solicitors please call us on 0800 1777 162 or complete the web-form above.

Last Updated on 09/02/2012