If your company is facing the threat of insolvency, it is important to seek professional advice, whether that is from your accountant, solicitor or a qualified and licensed insolvency practitioner. It can also be helpful to have an understanding of the key insolvency rules that apply to businesses under UK law.
Company directors and small business owners in particular need to be aware of their obligations and liabilities in the event of their company becoming insolvent and unable to repay its debts.
The key piece of government legislation relating to businesses in the UK is the Insolvency Act 1986. The Insolvency Act provides detailed rules relating to both personal and company insolvency in England and Wales, and in Scotland. Specific subjects covered by the Act include:
• Company Voluntary Arrangements
• Winding up of companies registered under the Companies Acts
• Members’ voluntary winding up (liquidation)
• Creditors’ voluntary winding up (liquidation)
• Winding up by the court (compulsory liquidation)
• Dissolution of companies after winding up (liquidation)
• Malpractice before and during liquidation
• Amongst other specific technical provisions, the Insolvency Act provides a legal definition of “inability to pay debts” as the following:
If a creditor to whom the company is indebted in a sum exceeding £750 has served on the company a written demand requiring the company to pay the sum due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor.