With the growing complexity and sophistication of law and commerce, insolvency practitioners and businesses need to be confident that their lawyers understand their markets and the context in which they operate.

'Offence is the best defence'. If you find your business is in financial difficulties, the sooner you seek our expert advice, the wider your choice of 'turnaround' options and strategies.
 
So, what is insolvency?
‘Insolvency’ is a general term, which means you are unable to pay your debts as they fall due (“cash flow” insolvency) or your current liabilities exceed your current assets (“balance sheet” insolvency). In many cases, both tests are satisfied but it is cash flow insolvency which triggers bankruptcy (for individuals) or winding up petitions (for companies and partnerships) to be presented by creditors. These are the main ‘causes’ of insolvency if not dealt with properly and within strict time limits.

The role of the law is to ensure that assets are realised and distributed to creditors in an orderly and efficient manner and that the circumstances of the insolvency are investigated to ensure there has been no wrongdoing. With many of the provisions of the Enterprise Act 2002 now in force, a ‘rescue culture’ is being created which seeks to help debtors get back on their feet, if possible. If not, the law tries to spread the effects of the insolvency so that the Tax Man and the bank do not take the biggest proportion first, with the ordinary creditor receiving little or nothing of their original debt. However, this does not mean that recklessness or wrongdoing is now excusable as penalties for wrongful trading, concealing assets from creditors and paying some creditors in preference to others are still vigorously enforced.

It can be difficult to answer the question “Am I or is my business ‘insolvent’?” but if there is not enough money coming in to cover what is needed to go out then:

• Take immediate advice from a specialist solicitor or licensed insolvency practitioner (usually a specially qualified accountant). The advice could prove invaluable.
  
• Speak to your creditors.
  Ignoring demands will not make the matter go away. You may be able to agree to pay the debt by manageable instalments and you may be surprised how many people will be happy to accept something rather than nothing.
  
• Be realistic and honest.
  Offer to pay what only what you can afford, not what you think the creditor would like to receive. You have already broken one agreement to pay and breaking another will not gain you any sympathy or credibility with your creditors.

If you would like further information and the chance to speak with a lawyer, please contact Andrew Knox on 01392 288386 or email andrewknox@veitchpenny.co.uk