Insolvency

What Happens When A Company Cannot Pay Its Debt?

A company is said to be entering insolvency when it is unable to pay its debts. A Company is deemed as ‘unable to pay its debts’ where following applies:

  1. It has failed to comply with a statutory demand for a debt of £750 or more.
  2. It has failed to satisfy the enforcement of a judgement debt.
  3. The court is satisfied that the company is unable to pay its debts as they fall due; or
  4. The court is satisfied that the liabilities of the company (including contingent and prospective liabilities) exceed the assets of the company (known as the balance sheet test).

Where a company is deemed insolvent, there are different types of insolvency procedures under UK law.

Administration

A company is put into administration where there is a possibility that the company may be rescued, reorganised or its assets could be realised. An administrator can be appointed either on application to the court (by the directors, the company or creditors), or following an administration application made by the directors, the company or a qualifies floating charge holder.

Where a company is an administration, there is a moratorium in place which prevents winding up petitions being made, or resolutions being passed to put the company into liquidation. An administrator is then able to consider whether it is possible to:

  1. Rescue the company as a going concern; or
  2. Whether it is possible to realise the assets of the company in way which is more beneficial than liquidation; or
  3. To achieve a payment or realisation of assets for the benefit of any secured and professional creditors.

An administrator is required to perform their functions in the interests of the company’s creditors as a whole.

Liquidation

Liquidation can be either a compulsory liquidation, or it can be an voluntary liquidation. For more details on this particular area, this can be found on our dedicated pages.

If at this point you have received a winding up petition notice letter from HMRC, you need to act on it quickly. This notice can be for the intention to close your business, and therefore seeking immediate advice from can be vital.

Altion Law has many years of experience in speaking and dealing with HMRC. This allows us to take preventive measures to assist you. This can be helping the company to respond, or discuss a time to pay arrangement.

Most winding up petitions will be brought by HMRC against businesses who cannot pay their PAYE, VAT, Corporation Tax and Wrongdoing Penalties. This can be a frightening prospect for any business.

Our Advice

Our advice is don’t give up. At Altion Law we have experienced negotiators who are here to fight your corner. To take the stress out of your situation, if we are able. Our Litigation lawyers have a proven track record of negotiating mutually agreeable deals with creditors, including HMRC.

For a free enquiry, call us today on 01908 414990. Or Complete our Free Enquiry Form to request a confidential and no obligation discussion. Let one of our expert team discuss your situation and the options available to you.