Insolvency Warning Signs

A company becomes insolvent when it is unable to meet its financial commitments due to a shortage of cash, or when the total value of its assets is less than the money it owes any creditors. Either scenario can ultimately lead to the winding down of a business, which is why it’s important to spot the warning signs of insolvency before it’s too late.

The common warning signs of insolvency are

Overtrading (lack of capital to pursue growth strategy, declining profit margins)
Accrued debts with HM Revenue & Customs
Significant bad debts & ageing debtor ledger
Terminal bank overdraft position – continually at the limit
High staff turnover
Delays in producing and providing financial information when requested
CCJ’s, Statutory Demands or WRITS registered against the Company
Loss of major contacts resulting in cash flow crisis
Constantly receiving red-top letters from creditors
Bailiffs attending to pursue unpaid debts

Three tests of company insolvency

If your Company is encountering financial pressure and you are unsure whether the Company can meet its commitments as and when they fall due, your Company may be technically insolvent. Three test of solvency are:

Expert insolvency advice

The exact point at which a business becomes insolvent is not determined by one single factor but by a range of circumstances specific to each company. It is therefore important that clear, independent advice is sought at the earliest opportunity to enable as many restructuring and recovery options as are available.

As outlined above, a business can be comfortably solvent on a balance sheet basis yet suffer from a poor cash flow position, rendering the company illiquid and unable to settle its liabilities as and when they fall due.

In all circumstances, Parker Andrews can help – contact one of our Insolvency Practitioners for a confidential discussion about your situation.

Here when you need us

Our team is always available by email 
and telephone in the evenings and at weekends, and we can also arrange meetings out of hours if required.
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