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Insolvency or Bankruptcy?

Published on 19th October 2018

Having nurtured your business from being just an idea or concept, one of your top priorities, no doubt, is safeguarding your success and ensuring a prosperous future. Yet as your business continues to trade, providing goods and/or services, you may encounter periods which could challenge your financial stability. But if the issue persists, it could lead to rising operating costs or a loss of earnings, affecting your ability to stay afloat. If you’re in such a situation or expect to be in the near future, it can be difficult to know which way to turn next, and this is especially true when considering filing for Insolvency or Bankruptcy, which is all too often confused as being one and the same. But if you’re to make an informed decision and choose an appropriate course of action, being able to tell the difference between Insolvency and Bankruptcy is of the utmost importance.

What is Insolvency?

If you’re considering filing for insolvency (or Technical Insolvency), you’re doing so because you’re not able to generate enough capital to meet your financial obligations on time, such as existing finance agreements, corporation tax or staff wages. Plus, filing for insolvency could also take place even if the total worth of your business’ assets exceeds your liabilities. As such, filing for insolvency won’t always give creditors enough cause to petition for bankruptcy or put your business into liquidation. Nevertheless, if you are considering making your business insolvent but want to continue trading in an effort to clear your business’ debts, you can either:

  • Enter an informal agreement: with the creditor which, if they agree, could grant you more time to resolve your financial obligations.
  • Enter a Company Voluntary Arrangement (CVA): providing the creditor(s) agree. If they do, a CVA could be used to either repay a portion of your business’ debts or come to another arrangement regarding repayment of those debts.
  • Place your business in administration: which will pass over control of your business to an appointed administration company, whose sole focus will be on leveraging (converting into capital) your business assets in order to reduce the debts owed to your creditors.

Is your business at risk of becoming insolvent? Thinking about filing for bankruptcy? Need access to additional capital instead? Apply for Working Capital Finance or learn more about how your business could benefit.

What is Bankruptcy?

On the other hand, bankruptcy applies to you and/or any associated directors on an individual level, involving any debts that you’re unable to resolve. As such, filing for bankruptcy could be seen as a way of offloading your debt, allowing you to start over. But choosing this path does entail sharing out assets with each of your creditors, in respect of how much capital they’re each owed. Nevertheless, a bankruptcy is usually applied:

  • If you’re unable to unable to repay the debts that you owe.
  • If creditors are owed £5,000 or more, they’ll file an application declaring you bankrupt.
  • If you’ve breached the terms of an Individual Voluntary Agreement (IVA), an insolvency practitioner may file a bankruptcy order instead.

Plus, if you are considering filing for bankruptcy, you’ll need to bear in mind that you’ll be charged £680. The insolvency service provider will also appoint an official receiver within two weeks of the application being filed, enabling them to sell your business’ assets in order to settle your debts. In addition, the funds that are raised from the sale of your business’ assets will also be dispersed in a specific order. Firstly, employee salaries will need to be paid. From there, your creditors will be repaid the funds (principle) that they’re owed, before interest. If there’s any capital leftover, it’ll be handed over to you. Plus, providing all debts have been settled and no one else is owed any more capital, could apply to have the bankruptcy order revoked.

How can I support my business?

Nevertheless, filing for insolvency or bankruptcy should only be taken as a last resort. If your business has become loss-making or you’re having trouble keeping up with your financial obligations, taking action as soon as you’re aware of any issues could be the key to safeguarding your business. One way of achieving this is by applying for Working Capital Finance, which offers you access to a wide range of business solutions, including Invoice Finance, Merchant Cash Advance, Asset Refinance and Overdraft Replacement. Plus, depending on the product and the complexity of the request, you could be approved in as little as 48 hours. So if you’re looking to support your business and maintain your bottom line, all you need to do is source a suitable agreement, which is where speaking with a qualified business finance professional could help.

Need help supporting your business?

Maintaining your business’ bottom line is a responsibility that needs to be constantly attended to. However, at any point in your development, you’re bound to run into any number of obstacles that could affect your ability to move forward, especially if it involves your ability to stay on top of financial obligations which, if left unchallenged, could lead to insolvency or the prospect of filing for bankruptcy. Yet rather than let the situation escalated to this point, you could apply for Working Capital Finance. All you need to do is source a suitable finance agreement from a lender you can trust, which is where we step in and do the hard work for you.

At Rangewell, we’re an Access to Finance specialist. We’ve comprehensively mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process - we’re here from initial search to acceptance. So if your business is at risk of becoming insolvent and needs access to quick cash, apply for Working Capital Finance today or find out more with Rangewell.


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