What is an insolvent company?
An insolvent company is one which through its trading has reached a point where the outgoing finances are no longer covered by the incoming finances, there is a very definite guide to how to recognise and diagnose insolvency within a business which won’t be covered in this post but can be found in our free advice details.
It is seen as illegal should a company that considers itself insolvent to continue trading. The directors and owners would be seen as responsible and would be liable for the possible legal ramifications.
Insolvent Trading Explained.
If a company, or those responsible for the company seeks to obtain credit when it has identified that the company’s cash flow cannot accommodate to pay off the proposed credit It is seen as trading insolvently.
It is essential that as an owner or director of a company you know that the company is not trading wrongfully. If you are unsure about the status of your company’s financial affairs or how to diagnose insolvency it is imperative that you seek professional advice as soon as is possible, there are contact details for How To Close Company elsewhere on this website.
Increasing debts, mounting service payments or even very simple mistakes or oversight in the cash flow of the business could lead to the fiscal stability of a company. A small oversight could lead to an exponential group of problems presenting themselves and causing unforeseen costs. Even if the company is doing well poorly organised financial details can lead to confusion as to the status of the company’s affairs.
What are the possible legal implications?
It is possible that directors, shadow directors, even previous directors and of course direct business owners can be personally accountable to fines or even criminal charges. If an appointed liquidator finds that the director(s) had been subject to poor conduct it is possible for those found to be responsible to be banned from future business directorship as per the 1986 Company Directors Disqualification Act.
What can be done?
If you feel that there is even a possibility that now or in the near future a company to which you are responsible might become insolvent it is essential that you seek out professional advice. Steps you can take yourself include organising and collating your financial detail, often it is possible that if you already have some indication of problems there may be a lot more once you concentrate and dig through the detail. Seek out and speak with an Insolvency Auditor, Or call us today for free advice relating directly to your company.
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