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Corporate insolvency ranges from a small business, with two employees owing a few thousand pounds, to the collapse of large groups owing upwards of a billion pounds. Some of the wrong reasons are:

  • Lack of financial management
  • Insufficient investment capital (cash): too much credit
  • Lack of general business skills (especially marketing skills)
  • Poor product/service
  • Too much cash taken from the business
  • Falling out with business partner/s
  • Fraud
  • Many owners of failed businesses would tell you that a lack of cash flow was responsible for the insolvency of their company. Cash flow is a symptom of one of the above reasons, not the cause of them.

Cash flow should only affect you if you had a customer who represented a large percentage of your sales, and they could not pay you (this is the danger of large orders in small businesses) or you overtrade.

A registered company can suffer a number of different forms of insolvency:

a) Compulsory Liquidation

b) Creditors Voluntary Liquidation

c) Members Voluntary Liquidation

d) Administrative Receivership

e) Administration Order

f) Company Voluntary Arrangement

Compulsory Liquidation
A winding-up petition is usually initiated by a creditor, or a government department, due to an outstanding debt that the company has not paid.

The petition is served on the company, then advertised in the press with a date set for a court hearing. If the company has not paid the debt for which the petition was issued, and/or further debtors and/or company irregularities come to light, the court will usually approve a winding-up order.

The official receiver (OR) immediately takes control of all aspects of the company. The OR has twelve weeks in which to decide whether or not to hold a meeting of creditors: a meeting will usually be called if there is a prospect of payment to a creditor/s.

If there is no prospect of payment, and no sign of irregularity by directors, the matter is closed.
If you have information about a company in liquidation that you want to divulge, or you want to register as a creditor and you are not sure where to contact, there will usually be an OR in the debtors area who will be dealing with the case.