Options for Solvent or Insolvent Companies

22 July 2021 
2 minutes

With Corporate Insolvencies on the rise generally across the UK, it is evident that Directors, having traded through a difficult period and now facing a further period of uncertainty, are now taking the initiative with insolvency advice rather than risking a possible compulsory liquidation when the government protections currently in place end.

One key question Directors should be asking is whether their company is solvent or insolvent. This is not only important from a Director’s own perspective and on a personal level if the company is trading whilst insolvent, but an important first step in establishing what is the best route forward.

If your company is insolvent, which in basic terms means it cannot pay its bills as and when they fall due, then Directors must act properly and act in good time. There are a number of insolvency options open to it including Administration, Company Voluntary Arrangements, and Creditors Voluntary Liquidation. Creditors’ Voluntary Liquidations (CVLs) are an option that the latest insolvency statistics for June 2021 show are on the rise.

However, if the company is solvent there are other options open to it. One option would be to close the company by means of a Members Voluntary Liquidation (MVL). It may be that Directors simply have the desire to retire after what has been an incredibly difficult period for business or to extract cash now following the sale of assets. In turn, shareholders may be seeking to seek to extract their investment in a tax-efficient manner. Directors also have control of the process with many of the personal risks associated with being a Director being brought to an end.

At MKB Law we advise companies across a diverse range of sectors on their options. Our Debt Advisory services are also available to Directors who have provided personal guarantees or who are concerned with personal vulnerability for misfeasance or wrongful trading.

If you or your business is affected by any of these issues or require assistance please contact our Insolvency team to discuss.

This article is for general guidance only and should not be regarded as a substitute for professional legal advice.

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