Insolvent Companies: A company or partnership is insolvent if it has insufficient assets with which to pay its debts and liabilities. If 21 days has expired since the statutory demand was issued and the debtor has not paid, then, where the debtor is a company or partnership, the next step in the process is for the creditor to issue a winding up petition at court. The court will decide, at a hearing, whether to make a winding up order. For more information on using a winding up procedure to chase debts click here.

If a winding up order is made, the directors’ powers cease and the employees are dismissed. Each of the company’s creditors is invited to submit a proof of debt to the liquidator. To the extent that the liquidator accepts its proof, each creditor is entitled to a dividend at the end of the liquidation process.

The effects on a company of the presentation of a petition to wind up the company are extremely serious. It is therefore imperative that as soon as the directors are aware that the company is in financial difficulties they should seek advice. The TSP Dispute Resolution team have extensive experience helping companies who find themselves in this situation. 

There are alternatives to insolvency. A company may be rescued or reorganised by going into Administration (click here to read our Business Briefing on the subject) or a Company Voluntary Arrangement (CVA)  may be agreed between the company and its creditors which is then implemented and supervised by an Insolvency Practitioner. Click here to read our Business Briefing on CVAs.

If the company is wound up a liquidator is appointed to collect in and distribute the company’s assets and dissolve the company. There are two types of liquidation, either compulsory or voluntary. The first is by order of the court. This is commenced by petition, often by a creditor on the grounds that the company is unable to pay its debts. The second is by resolution of the company. There are two forms of voluntary liquidation, Members or Creditors. Click here to read our Business Briefing on Compulsory Liquidation.

If you find yourself in an insolvency situation then the TSP Dispute Resolution team can help. They have advised many companies in this situation. Please do get in touch by clicking here.