Debt and insolvency
By Andrew Davidson
Since the financial crash of 2008 several businesses are threatened by debt and insolvency. Many businesses that contact us depend on reliable cash flow to remain afloat and are unable to meet their obligations because they themselves are owed money, often by another struggling business. In these circumstances the law’s priority is to try and keep as many businesses running as possible. This may be by encouraging grace periods and voluntary reductions in repayments but, in extreme cases, the law can force a company to become insolvent and use its assets to pay off its debts.
If your business is one facing insolvency then it is important to seek legal advice as soon as possible. Instructing a good debt and insolvency solicitor at an early stage could mean the difference between keeping your business afloat and being forced to wind it up. In the event that the business cannot continue trading, having a good solicitor on board will ensure that you meet all your legal obligations. For example, continuing to trade while insolvent can still carry criminal penalties for company directors and, in addition to a possible prison sentence, a conviction could disqualify you from acting as a director in the future.
Historically, the law was far more harsh. Before the nineteenth century unpaid debt and insolvency were seen as criminal matters and debtors could be sent to prison until they could pay their debt or their creditors agreed to their release. However satisfying it might be to see a person who owes you money locked away, this is no longer considered to be economically viable. By permitting businesses to become insolvent, that is, to legally acknowledge that they cannot pay their debts, the law encourages businesses to take entrepreneurial risks and by limiting the liability of the business to its own assets the law protects those who are willing to invest in ambitious projects.
If another company owes your business money, it may be tempting to seek to have them declared insolvent. This is not a step that should be taken lightly. A debt and insolvency solicitor should always be consulted. As the law’s priority is to try to keep as many people as possible in business, you may find that you are not paid everything you are owed. Even if the insolvent company is completely wound up, they have to pay their debts in a strict order of priority. If they run out of money before they reach you, you could end up with nothing. Debt and insolvency specialists will be able to advise you on this process and help you to judge what the best course of action is.
Contact Law works with debt and insolvency solicitors throughout the UK – call us on 0800 1777 162 or fill in the web-form opposite to talk to one of our advisors.
Andrew Davidson is one of Contact Law’s most knowledgeable case handlers with extensive experience in this matter from dealing with clients on a day-to-day basis.
- Last Updated on 13/02/2012