A company becomes insolvent when it cannot pay its debts as they become payable or if, according to its balance sheet, its liabilities – including contingent liabilities – exceed its assets.
A number of steps can be taken to reduce the risk of insolvency, and it is the duty of company directors to seek professional, financial and legal advice as soon as possible if they believe that their business is insolvent or may become so.
Once it becomes apparent that there is no reasonable chance to avoid insolvency, the company must act so as to minimise the loss to the creditors. Failing to take the necessary steps may make directors personally liable for the debts.
If insolvency occurs, there are a number of possible options for limited companies, including liquidation.
In all insolvency processes, company directors have a duty to take the appropriate steps and provide full and accurate information. It is important that these duties are understood and complied with. Failure to do so can give rise to both civil and criminal litigation.Last Updated
Contents
Corporate insolvency
Corporate insolvency
Management Zone >
Business law >
Corporate insolvency
