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What is Corporate Insolvency?

Published on 22nd October 2018 - Last update on 24th October 2018

In order for any business to achieve a sustainable future, generating a reliable income from the sale of goods and services is essential. However, running your day-to-day operations is certain to amass a variety of expenses that you must be able to manage. But this isn’t always a simple matter and could lead to incurring debts that you aren’t able to repay, especially in the event of uneven cash flow or unexpected payment demands. Yet left unchallenged, and without seeking the necessary support, this situation could escalate into Corporate Insolvency. Although this is a situation that every business owner dreads, understanding what Corporate Insolvency is and what’s involved could be the key to turning your situation around.

What is Corporate Insolvency?

Simply put, Corporate Insolvency describes a situation of financial difficulty within your business.

It’s a period where your business may possess insufficient amounts of capital and/or assets to settle its debts. As such, your business could fall into Corporate Insolvency if:

  • You’re incurring a rising amount of debt that you can no longer to afford to repay due to a lack of available capital, which could arise as a result of uneven cash flow for a sustained period of time (cashflow insolvency),
  • Or, your total debts have grown to a point where they now exceed the total worth of your business’ unencumbered assets (Balance-sheet Insolvency).

Either way, Corporate Insolvency is a situation that threatens your business’ long-term sustainability and should be avoided, if possible. However, that’s sometimes easier said than done. But if you’re heading into Corporate Insolvency and want to stand any chance of turning the situation around, understanding the risks involved is essential.

Having trouble keeping up with your financial obligations? Need access to additional funds, and fast? Apply for Working Capital Finance or learn more about how your business could benefit.

What are the risks with Corporate Insolvency?

When your business files for Corporate Insolvency, your sole focus needs be set on clearing the debts that are owed to each of your creditors as soon as possible. However, depending on your individual circumstance and what actions you’re advised to take, there are a number of potential consequences that need to be considered before going forward. So, depending on the details of your plan and how you wish to proceed, you may:

  • Run the risk of personal claims - If you and any associated directors decide to continue trading in spite of impending corporate insolvency, there is a risk of incurring further personal claims (e.g. claims from employees) if you fail to meet those commitments. Should this occur, it could escalate into you being disqualified.
  • Incur a winding-up petition - If you fail to live up to any further financial commitments when you resuming trading, you could receive a petition from your creditors forcing your business into Compulsory Liquidation and transfer control over to an Insolvency Practitioner.
  • Invalidate disposable assets - Another point to consider in relation to a wind-up petition is that if you wish to sell off any of your business’ assets in order to purchase supplies, rather than settle existing debts, you must seek court permission before doing so.
  • Default on any existing banking arrangements - By becoming insolvent, or nearing insolvency, the process could lead to any banks you have existing facilities or finance arrangement with declaring your business as having defaulted. As such, if any of the arrangements were secured, it will lead to assets being repossessed.
  • Withdrawal of support - If the corporate insolvency process has been initiated, it may lead to suppliers and existing customers withdrawing their support. As such, they’ll take measures to protect their interests, including the termination of outstanding contracts.
  • Transactions being reviewed - If your business has entered administration, any transactions that you’ve made within the period of 2 years could be reversed if they were made below the market value or gave preference to certain creditors.

How can I avoid Corporate Insolvency?

Although Corporate Insolvency is something that every business wants to avoid, you’re bound to run into any number of challenges that could lead to insolvency if they’re not resolved in time. But if you are facing financial difficulty, especially over a prolonged period, one of the main obstacles standing in your way could be a lack of available capital. However, rather than let the situation get out of hand or hope that it’ll go away by itself, you could take back control over your business’ financial stability by applying for Working Capital Finance.

This is because by applying for Working Capital Finance you could gain access to additional capital through the use of products such as Invoice Finance, Merchant Cash Advance, Asset Refinance or Overdraft Replacement. All you need to do source a suitable finance solution that could help your business regain its footing.

Need help supporting your business’ finances?

At every stage in your business’ development, making sure that you have access to a sufficient amount of capital in order maintain your bottom line and stay afloat is essential. However, that isn’t always an easy goal achieve, especially if your cash flow isn’t guaranteed. But rather than let your business debts mount up and draw the ire of any creditors, you could seek the support on offer through applying for Working Capital Finance. All you need to do is source a suitable finance agreement for your business from a lender you can trust - which is where we can help.

At Rangewell, we’re an Access to Finance specialist who has mapped over 400 lenders to offer you a comprehensive 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 - support from start to finish. So if you're looking to gain access to additional funds and avoid the risk of Corporate Insolvency, apply for Working Capital Finance today or find out more with Rangewell.

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