What Is Insolvency?

What does insolvency mean?

A company may be insolvent when it cannot pay its debts as they fall due, or when the value of its assets is less than its liabilities, taking account of contingent and prospective liabilities. These are commonly described as the cash-flow and balance-sheet tests.

Common warning signs

• Regularly paying suppliers late
• Falling behind with VAT, PAYE or Corporation Tax
• Using new borrowing or income to meet older debts
• Being unable to meet payroll
• Receiving county court judgments, statutory demands or enforcement correspondence
• A creditor threatening or presenting a winding-up petition

A CCJ and a winding-up petition are not the same. Both matter, but a petition can create particularly urgent deadlines and consequences.

What it can mean for directors

As insolvency becomes probable, directors should give increasing weight to creditors' interests and take particular care over new credit, asset sales, payments to connected parties and choosing which creditors to pay. The precise duties and risks depend on the facts.

Does insolvency always mean liquidation?

No. Depending on viability, funding, timing and creditor support, possible outcomes can include an informal rescue, refinancing, a company voluntary arrangement, administration, a sale, or liquidation. Some options require a licensed insolvency practitioner.

What should I do next?

Gather current financial information, note any legal or creditor deadlines, avoid making major decisions on incomplete information and obtain appropriate professional advice promptly. Earlier action often leaves more options available.

You can start the confidential assessment, read what to expect, or request a callback. For formal advice, use the official GOV.UK practitioner search.