Corporate Insolvency FAQ’s
This article answers to the most commonly asked corporate insolvency questions. Below are my top 10 (in no particular order)…
1. How can I tell if my company is insolvent?
Your company is considered insolvent if it either cannot pay its debts as and when they fall due or if its assets are worth less than its liabilities. If you believe that your client’s company is insolvent then you should seek professional advice to ensure that it does not trade whilst insolvent as this can, in some cases, lead to reduced dividends to creditors and/or actions against its Directors.
2. Can I continue to trade my Company once it has been established that the Company is insolvent?
Ideally trading should stop immediately upon the realisation that the Company is insolvent unless the trading completed is of ultimate benefit to the creditors (i.e. will result in the position of no creditors worsening and will maximise the realisations).
3. What is the difference between Liquidation and Administration?
Administration is a court driven process and therefore more protection is offered from creditors issuing legal proceedings against the company than in Liquidation. Administration also is a better process when there are greater asset values as it is often used to ensure that there is a greater dividend to creditors than in a winding up.
4. If I place my Company into an insolvency process (like Liquidation or Administration) will it affect my personal credit rating?
A limited company is completely separate from the individuals who own or run the company and therefore no personal effect should be experienced from the directors or shareholders of an insolvent company unless they have signed personal guarantees obligating them to pay for company debts personally. If these debts are left unpaid then their own personal credit rating may decrease.
5. How can I check whether I’m likely to receive any money back from an insolvent Company?
You can ask the Insolvency Practitioner appointed as the Liquidator, Administrator or Supervisor who will provide you with an estimate of dividend prospects. It should also be noted that the Insolvency Practitioner is required to regularly report to creditors confirming this therefore this should be made clear in any reports that you or your clients receive from an insolvent company.
6. If I place my Company into Liquidation or Administration, can I still be a Director of another Limited Company?
Yes you can. There are no rules which forbid a director or shareholder of an insolvent company from setting up again as a Director or continuing existing directorships they have providing they have not been subject to an action from the Insolvency Service which resulted in them being disqualified from acting as a director. It should however be noted that there are restrictions on the re-use of a same or similar name to that of the insolvent company therefore further advice should be sought if this applies to one of your clients.
7. If my Company receives a Winding up Petition or notice to Strike Off, is it too late to place my Company into Liquidation or Administration?
No it’s not, as long as a Winding up Order hasn’t been made or the company already dissolved, however these can sometimes be overturned by way of nominating your own insolvency practitioner as the Compulsory Liquidator or restoring the company to the register.
8. Do Company Directors or Shareholders have to pay back any shortfalls to creditors after their Limited Company is placed into an insolvency process and that process has completed?
No, a company and its directors / shareholders are separate legal entities and therefore do not incur any of the company’s debts personally unless guaranteed.
9. Can I buy back the assets of my insolvent company even though I am a Director or Shareholder?
Yes, this is common practice to buy back assets providing a fair price is paid for the assets (which is usually established by an independent Valuer). However, it should be noted that any sale to connected parties must be disclosed to the Company’s creditors.
10. Are all corporate insolvencies advertised in the papers?
No, not any more. The Insolvency Practitioner can now use their discretion and decide not to advertise in local press, which he will usually use (in order to avoid the risk of any Goodwill values being diminished). However, meetings, dividends and appointments are always advertised in the London Gazette which can sometimes be picked up by Banks and Factors.