<h2>What Does Insolvency Mean?</h2>
<p>A company is insolvent when it cannot pay its debts. In the UK, two tests are used to determine insolvency:</p>
<h3>The Cash-Flow Test</h3>
<p>Can the company pay its bills as they fall due? If not, it may be cash-flow insolvent. This includes debts that are due now and those that will become due in the near future.</p>
<h3>The Balance-Sheet Test</h3>
<p>Are the company's total liabilities greater than its total assets? If so, the company may be balance-sheet insolvent, even if it can still meet day-to-day payments.</p>
<h2>Why It Matters</h2>
<p>Directors of a UK limited company have a legal duty to act in the best interests of creditors once they know, or should know, the company is insolvent. Failure to act can lead to personal liability.</p>
<h2>Common Warning Signs</h2>
<ul>
<li>Regularly paying suppliers late</li>
<li>Using new borrowing to repay old debts</li>
<li>Receiving county court judgments (CCJs) or statutory demands</li>
<li>Inability to agree HMRC payment plans</li>
<li>Creditors threatening winding-up petitions</li>
</ul>
<h2>Next Steps</h2>
<p>If any of these apply to your company, take the <a href="/assessment">free assessment</a> or <a href="/contact">speak with an advisor</a>.</p>


An introduction to insolvency — what it means, when it applies, and the key tests used in the UK.