How to Get Insolvency Advice for a Company

Understanding Company Insolvency

Company insolvency occurs when a business cannot meet its financial obligations as they fall due or when its liabilities exceed its assets. Under the Insolvency Act 1986, a company is deemed insolvent if it fails either the cash flow test or the balance sheet test. The cash flow test examines whether the company can pay its debts as they become due, whilst the balance sheet test considers whether the company's assets exceed its liabilities. This dual test approach ensures that both immediate liquidity concerns and longer-term financial viability are properly assessed when determining insolvency status.

Recognising the early warning signs of financial distress is crucial for directors and stakeholders. These indicators include persistent cash flow problems, difficulty meeting HMRC obligations, supplier payment delays, declining sales, increasing creditor pressure, and inability to secure additional funding. Additional warning signs may include deteriorating gross margins, increasing reliance on short-term financing, difficulty obtaining trade credit, customer payment delays, and mounting professional fees. When these signs emerge, seeking professional insolvency advice becomes essential to explore available options and protect stakeholder interests whilst ensuring compliance with director duties.

The legal framework governing company insolvency in England and Wales is primarily established by the Insolvency Act 1986, supplemented by the Companies Act 2006 and the Corporate Insolvency and Governance Act 2020. This legislation provides various procedures designed to either rescue viable businesses or ensure orderly liquidation when rescue is not possible. The framework also includes detailed provisions for director duties, creditor rights, asset recovery, and stakeholder protection. Understanding these legal provisions is fundamental to making informed decisions about the company's future and ensuring compliance with statutory obligations throughout any insolvency process.

When to Seek Professional Insolvency Advice

Directors should seek professional insolvency advice as soon as financial difficulties become apparent. Early intervention significantly increases the likelihood of successful business rescue and helps directors fulfil their legal obligations under the Companies Act 2006. Section 172(3) of the Companies Act 2006 requires directors to consider creditor interests when the company is approaching insolvency, making professional guidance essential. The duty to consider creditor interests represents a fundamental shift from the normal duty to promote shareholder interests and requires careful navigation with professional support.

Specific circumstances that warrant immediate professional advice include receiving statutory demands from creditors, facing winding-up petitions, experiencing persistent cash flow shortfalls, defaulting on loan agreements, receiving HMRC enforcement action, or when directors are concerned about potential wrongful trading liability under Section 214 of the Insolvency Act 1986. Additional triggers include breach of banking covenants, inability to pay quarterly VAT returns, mounting professional fees, supplier credit withdrawal, and deteriorating relationships with key stakeholders. Each of these circumstances can rapidly escalate and limit available options if not addressed promptly with professional guidance.

The timing of seeking advice is critical. Delaying professional consultation can limit available options and potentially expose directors to personal liability. Early engagement with qualified insolvency practitioners allows for comprehensive assessment of the company's position and development of appropriate strategies to address financial difficulties whilst protecting stakeholder interests. Professional advisors can also help implement interim measures to stabilise the position whilst longer-term solutions are developed, including creditor communication strategies, cash flow management, and stakeholder engagement protocols.

Licensed Insolvency Practitioners

Licensed insolvency practitioners are the only professionals authorised to act as office holders in formal insolvency proceedings under the Insolvency Act 1986. They must be licensed by one of the recognised professional bodies: the Insolvency Practitioners Association (IPA), Institute of Chartered Accountants in England and Wales (ICAEW), Institute of Chartered Accountants of Scotland (ICAS), Chartered Accountants Ireland, Association of Chartered Certified Accountants (ACCA), Law Society, or the Secretary of State. This licensing system ensures that only appropriately qualified and regulated professionals can take formal appointments in insolvency cases, providing protection for creditors and other stakeholders.

To obtain and maintain their licence, practitioners must demonstrate appropriate qualifications, experience, and ongoing professional development. They must pass the Joint Insolvency Examination Board (JIEB) examinations and maintain professional indemnity insurance. Licensed practitioners are subject to regulatory oversight and must adhere to strict professional and ethical standards established by their licensing body and the professional body R3. The licensing system includes regular monitoring visits, case reviews, and continuing professional development requirements to ensure practitioners maintain appropriate standards throughout their careers.

When selecting an insolvency practitioner, companies should consider the practitioner's experience in their industry sector, track record in similar cases, approach to stakeholder communication, fee structure, and availability of resources. It is advisable to meet with several practitioners to assess their suitability and obtain different perspectives on the company's situation before making a selection. Key factors to evaluate include the practitioner's understanding of the business, proposed strategy for addressing the company's difficulties, communication style, and ability to work collaboratively with existing management and professional advisors.

Types of Insolvency Procedures Available

Administration

Administration is a rescue procedure designed to achieve one of three statutory objectives: rescuing the company as a going concern, achieving a better result for creditors than would be likely in liquidation, or realising property to make distributions to secured or preferential creditors. The procedure provides a statutory moratorium protecting the company from creditor action whilst the administrator develops and implements a strategy. This moratorium is one of the most powerful features of administration, preventing creditors from taking enforcement action, commencing or continuing legal proceedings, or exercising rights of forfeiture without court permission.

Administration can be initiated by the company, its directors, a qualifying floating charge holder, or creditors through court application. The process typically lasts for one year, though this can be extended with creditor or court consent. During administration, the appointed administrator takes control of the company's affairs and has extensive powers to manage the business, dispose of assets, and negotiate with creditors. The administrator must act in the interests of creditors as a whole and has a duty to perform their functions as quickly and efficiently as reasonably practicable.

Company Voluntary Arrangement (CVA)

A CVA is a binding agreement between a company and its creditors that allows the business to continue trading whilst paying creditors over an extended period, typically three to five years. The arrangement requires approval from creditors representing at least 75% by value of those voting, and shareholders representing more than 50% by value of those voting. Once approved, the CVA binds all unsecured creditors, including those who voted against the proposal or did not participate in the voting process.

CVAs are particularly suitable for companies with viable businesses but temporary cash flow difficulties. The procedure allows directors to retain control of the company whilst implementing the agreed payment plan under the supervision of a licensed insolvency practitioner acting as supervisor. Successful CVAs can preserve employment, maintain supplier relationships, and provide a structured path to financial recovery. The supervisor monitors compliance with the arrangement and reports to creditors on progress, ensuring transparency and accountability throughout the process.

Liquidation Procedures

When rescue is not viable, liquidation procedures provide for the orderly winding up of the company's affairs. Creditors' Voluntary Liquidation (CVL) is initiated by shareholders when the company is insolvent, whilst compulsory liquidation follows a court order, typically after a creditor's winding-up petition. Members' Voluntary Liquidation (MVL) is available for solvent companies seeking to distribute surplus assets to shareholders. Each type of liquidation has different procedural requirements and implications for stakeholders.

During liquidation, a licensed insolvency practitioner is appointed as liquidator to realise the company's assets, investigate the company's affairs, and distribute proceeds to creditors according to the statutory order of priority. The liquidator also has duties to investigate director conduct and may pursue claims for wrongful trading, preferences, or other recoverable transactions. The liquidation process typically involves asset valuations, creditor claims adjudication, asset realisations, and final distributions before the company is dissolved and removed from the register at Companies House.

The Initial Consultation Process

The initial consultation with an insolvency practitioner typically involves a comprehensive review of the company's financial position, trading history, and prospects for recovery. Directors should prepare detailed financial information including management accounts, cash flow forecasts, aged creditor listings, asset valuations, and details of any security interests or guarantees. Additional documentation may include recent board minutes, banking facilities agreements, key supplier and customer contracts, and any existing professional reports or valuations. Thorough preparation for the initial consultation ensures that the practitioner can provide accurate advice and realistic assessments of available options.

During the consultation, the practitioner will assess the company's solvency position, evaluate potential rescue options, consider stakeholder interests, and explain available procedures. This assessment forms the basis for recommendations on the most appropriate course of action, whether that involves informal arrangements with creditors, formal insolvency procedures, or continued trading with enhanced monitoring. The practitioner will also explain the implications of each option for directors, employees, creditors, and other stakeholders, ensuring that all parties understand the potential outcomes and their respective rights and obligations.

Most reputable insolvency practitioners offer initial consultations without charge, recognising that companies in financial distress may have limited resources. However, it is important to clarify the basis of any charges and obtain written confirmation of fee arrangements before proceeding with formal appointments. The initial consultation should also cover the practitioner's approach to stakeholder communication, expected timescales for any proposed procedures, and the level of ongoing involvement required from existing management and directors.

Costs and Funding Considerations

The costs of insolvency procedures vary depending on the complexity of the case, the procedure selected, and the practitioner's charging structure. Practitioners typically charge on a time-cost basis, though fixed fees may be agreed for straightforward cases. In formal procedures, fees are subject to approval by creditors or the court, providing protection against excessive charges. The fee approval process ensures transparency and accountability, with practitioners required to provide detailed breakdowns of time spent and work undertaken. Creditors have the right to challenge fees they consider unreasonable, and the court has powers to reduce fees where appropriate.

Funding for insolvency procedures can be challenging, particularly when companies have limited available assets. Options include funding from directors or shareholders, third-party litigation funding, asset-based lending, or in some cases, funding from the procedure itself through asset realisations. The Corporate Insolvency and Governance Act 2020 introduced provisions allowing rescue finance to be given super-priority status in certain circumstances, making it easier for companies to obtain funding for rescue attempts. Professional advisors can help identify appropriate funding sources and structure arrangements that maximise the prospects of successful outcomes whilst protecting funder interests.

For companies unable to fund formal procedures, alternative options may include informal arrangements with creditors, assignment for the benefit of creditors, or in extreme cases, allowing the company to be struck off the register. However, these alternatives may not provide the same level of protection for directors and may not achieve optimal outcomes for stakeholders. Professional advisors can help evaluate these alternatives and their implications, ensuring that directors understand the risks and benefits of each approach before making decisions that could affect their personal liability or future business prospects.

Director Duties and Responsibilities

Directors of companies approaching insolvency face enhanced duties and potential personal liability risks. The fundamental shift occurs when directors must consider creditor interests alongside or instead of shareholder interests, as established in the landmark Sequana case decided by the Supreme Court in 2022. This duty arises when directors know or ought to know that the company is insolvent or bordering on insolvency.

Section 214 of the Insolvency Act 1986 creates potential liability for wrongful trading where directors allow the company to continue trading when they knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation. Directors can defend such claims by demonstrating they took every step to minimise potential loss to creditors, making professional advice crucial in documenting appropriate actions.

Additional risks include potential disqualification under the Company Directors Disqualification Act 1986, personal liability for certain debts including PAYE and VAT, and potential claims for misfeasance or breach of fiduciary duty. Professional insolvency advice helps directors understand these risks and implement appropriate measures to minimise exposure whilst fulfilling their legal obligations.

Stakeholder Communication and Management

Effective stakeholder communication is essential throughout any insolvency process. Key stakeholders typically include creditors, employees, customers, suppliers, shareholders, and regulatory bodies. Each group has different interests and concerns that must be addressed through appropriate communication strategies developed with professional guidance.

Creditor communication requires particular care, as premature or inappropriate disclosure can precipitate enforcement action that may prejudice rescue prospects. Professional advisors can help develop communication strategies that provide necessary information whilst protecting the company's position. This may involve confidential discussions with key creditors, formal creditor meetings, or public announcements depending on the circumstances.

Employee consultation is mandatory in certain insolvency procedures and must comply with employment law requirements including TUPE regulations where applicable. Professional advisors can coordinate with employment law specialists to ensure compliance whilst minimising disruption to business operations and maintaining employee morale during difficult periods.

Alternative Dispute Resolution and Negotiation

Before pursuing formal insolvency procedures, companies may explore alternative dispute resolution mechanisms to address creditor disputes and negotiate payment arrangements. These approaches can be more cost-effective and preserve business relationships whilst addressing financial difficulties.

Informal arrangements with creditors, sometimes called standstill agreements, can provide breathing space whilst the company addresses underlying problems. These arrangements typically involve temporary payment deferrals, reduced payment amounts, or extended payment terms agreed with major creditors. Professional advisors can facilitate these negotiations and help structure agreements that are legally binding and commercially viable.

Mediation and arbitration services can help resolve specific disputes that may be contributing to the company's financial difficulties. Professional insolvency advisors often work with specialist commercial mediators to achieve negotiated settlements that avoid costly litigation whilst preserving business relationships essential for ongoing operations.

Regulatory Compliance and Reporting

Companies in financial distress must maintain compliance with various regulatory requirements whilst navigating insolvency procedures. This includes ongoing obligations to Companies House, HMRC, industry-specific regulators, and in some cases, the Insolvency Service. Professional advisors help ensure compliance whilst managing the additional administrative burden during challenging periods.

Statutory reporting requirements continue during insolvency procedures, including filing annual accounts, confirmation statements, and various insolvency-specific returns. Failure to maintain compliance can result in penalties, director disqualification, or other adverse consequences that may prejudice stakeholder interests.

Professional advisors also assist with regulatory notifications required in certain industries, such as financial services, healthcare, or regulated utilities. These notifications may trigger additional regulatory oversight or requirements that must be managed alongside the insolvency process to maintain necessary licences and authorisations.

Post-Insolvency Considerations

The conclusion of formal insolvency procedures does not necessarily end all obligations and considerations for directors and stakeholders. Understanding post-insolvency implications is important for planning future business activities and managing ongoing risks.

Directors may face ongoing restrictions or disqualifications that affect their ability to act as company directors in the future. Professional advisors can help directors understand these implications and, where appropriate, assist with applications to vary or terminate disqualification orders. They can also provide guidance on compliance with any undertakings given during the insolvency process.

For companies that successfully emerge from rescue procedures such as CVAs or administration, ongoing monitoring and compliance with agreed terms is essential. Professional advisors often continue to provide support during implementation phases to ensure successful completion of rescue plans and sustainable recovery.

Choosing the Right Professional Advisor

Selecting appropriate professional advisors is crucial for achieving optimal outcomes in company insolvency situations. The choice should be based on relevant experience, technical expertise, industry knowledge, and cultural fit with the company's values and objectives.

When evaluating potential advisors, companies should consider their track record in similar cases, approach to stakeholder management, fee structure and transparency, availability of resources, and ability to work collaboratively with other professional advisors such as lawyers, accountants, and industry specialists.

Nexus Corporate Solutions Limited provides comprehensive insolvency advisory services with extensive experience across various industry sectors. Our licensed insolvency practitioners combine technical expertise with practical commercial insight to deliver tailored solutions that protect stakeholder interests whilst maximising recovery prospects. We pride ourselves on clear communication, transparent fee structures, and collaborative approaches that achieve optimal outcomes for all parties involved. Our team understands the challenges facing companies in financial distress and works closely with directors, management teams, and other professional advisors to develop and implement effective strategies that address immediate concerns whilst building foundations for long-term success.