Sole Trader Insolvency

Sole Trader Insolvency

Being a sole trader is the simplest way to run a business as you are not required to pay any registration fees, and keeping records and accounts is very simple, plus you get to keep all of your profits. However as a sole trader you are personally liable for any debts that your business runs up.

If a sole trader is struggling with cash flow problems and is constantly unable to pay their debts on time they may be about to enter sole trader insolvency.

Profitable businesses can still be insolvent, especially if the business has large debts and customers start taking longer to pay, this could put the business at risk of running out of cash.

Spotting financial difficulty

If your business is exhibiting one or more of the problems listed below, then your business may be suffering from financial difficulties and approaching insolvency:

The business is constantly relying on its overdraft facility

Running payroll requires careful cash management every month

You are spending significant amounts of management time juggling cash rather than focusing on the business

You are receiving more calls and threats from creditors

Your customers are taking longer to pay their bills

Your payments to HMRC are constantly made late


As with any business, Sole Traders also have a responsibility to their creditors. If you are a sole trader and you are insolvent or approaching insolvency you need to take action immediately.

Sole Trader Insolvency Options

There are several options for insolvent sole traders which include:

  • Individual Voluntary Agreement
    This is when a schedule of repayments is agreed by 75% of the creditors, the agreement is usually drawn up by an insolvency practitioner. Using this process the business can continue to trade, however failure to comply with the terms and make the repayments could result in a petition for bankruptcy being lodged.
  • Declaring Bankruptcy
    A trader can declare bankruptcy when a creditor pursues them through the courts for debts over £750. The trader needs to be issued with a County Court Judgement for the debt, followed by a Statutory Demand, once this remains unpaid for 21 days the creditor can lodge a petition for bankruptcy. Once declared Bankrupt an insolvency practitioner takes control of the trader’s assets and uses them to settle the debts. Bankruptcy is a complex process and is usually only used as a last resort.
  • Professional advice
    Business turnaround specialists and insolvency practitioners will have a vast amount of experience dealing with sole traders and before decided on a course of action it is worth getting some advice. A professional will be able to explain all the available choices that are available, and the risks and benefits of each choice, they can also help you put your chosen plan of action in place.

To understand the whole range of options and to get help choosing the right one for your business contact us on 0800 597 4757 or enquire online using the form opposite.