Is My Company Solvent

I previously wrote about preforming a company health check and the value you can get out of it. I would like to now focus your attention on the solvency of your company and how to tell if your company is insolvent.

Firstly what is the definition of being insolvent, quite simply it is not being able to pay your debts as and when they fall due.

The time insolvency occurs may be very clear cut or it may be a general progression but you will be very aware when you began experiencing trouble paying your creditors. If you are at this point I strongly suggest you see an insolvency practitioner as trading whilst insolvent is against the law and attracts harsh penalties if you continue to trade whilst insolvent.

Factors that indicate your company may be insolvent

• Poor to little cash flow
  
• Continuing loss making activities
  
• Difficulties collecting debtors
• Loans to related parties that are non-recoverable
  
• Exceeding your debt facilities
  
• Intervention in your company's affairs by your lender
• Being placed on COD terms
• Creditors outstanding for more than 90 days
• Being placed on instalment repayment plans with creditors
• Difficulties obtaining finance

The above is a small list that gives you pretty good idea that your company needs to be examined in greater detail to assess its solvency. If your company is some of these signs do not panic nor continue to do ignoring the issues staring you in the face. Take action by seeking the assistance of a professional. They will present you with several options, not all of them will result in the liquidation of your company, they may be able to return your company to health. Just like seeing a doctor early can prevent serious illness seeing a insolvency practitioner early can prevent the death of your company.
When you see the practitioner they will present to you several options. If the practioner determines you are insolvent they will recommend that you the company into external administration. From here the administrator will run the affairs of the company for a short period after which the company can either be returned to the directors because it has returned to being solvent or it can be placed into a scheme where an arrangement is reached with creditors to repay them over a defined period of time with a set of conditions which if breached will result in the liquidation of the company and the final option you will be presented with is to place the company into liquidation and wound up in an orderly manner to maximise returns to all stakeholders.

From my experience the sooner you come to see an insolvency professional the greater the probability of a return to health and saving your company. Leaving a company to slowly wither away through a weak to non-existent cash flow stream will burn away the assets of the company, increase the debts and greatly reduce the probability of a return to solvency.

Remember to look after your company so it can look after you.