Am I Going Bust?
April 2009
With many businesses currently suffering cash flow difficulties, company directors and owners are asking, ‘does this mean I am going bust?’ Nick Blackbourn from Shropshire based commercial law firm Blackbourn & Bond Ltd confirms that this is one question being increasingly asked in these testing economical times, and whilst the legal answer is simple, the ways of practically dealing with the problem are different in each case. Here Nick explains:
‘Going bust’ is an expression which is commonly used to describe what the law calls ‘insolvency’, which applies to both Companies and people. The technical legal definition of insolvency is being unable to pay debts when they are due - in other words you simply do not have the cash available to pay your bills when you should.
If a company is insolvent in practice, but its directors believe there is a reasonable chance of trading out of the situation, then legally it is not yet insolvent. Directors have to judge when that point arrives based on the information known to them, for example if a big payment is due in and they have good reason to believe it will arrive and help them pay the bills, it may not have reached that point.
Once a company is insolvent however, to carry on trading could lead to the director having to meet those debts himself, so he has to take action. The company may cease to trade and be wound up, someone may be appointed to try to keep it going (an ‘administrator’) or it could go into a voluntary arrangement for a while to try to keep it alive (e.g. a ‘company voluntary arrangement or ‘CVA’) where its creditors agree only to take a percentage of the money due to them.
If a person is insolvent, this is known as ‘bankruptcy’, which can severely limit the individual’s ability to obtain credit or carry on in their job for a number of years, although it may be possible to enter into a voluntary arrangement with creditors to stave off the worst effects.
Anyone who has the slightest concern that they may be facing such circumstances should consult a solicitor or an insolvency practitioner as early as possible to put their fears to rest, and to understand fully what options are open to them, before being forced into a situation outside their control.
For further information, please visit www.blackbournbond.co.uk, or telephone 01743 233255.