Insolvency Act 1986
As a business owner, it’s essential to be aware of the legal framework that governs insolvency. The Insolvency Act 1986 is the primary legislation that deals with insolvency and bankruptcy in the UK.
In this post, we will provide an overview of the Act and its implications for businesses, along with practical advice on how to seek professional help in navigating financial difficulties.
Table of Contents
Types of Insolvency
Insolvency occurs when a company cannot pay its debts as they fall due, or when its liabilities exceed its assets. There are two types of insolvency: cash flow and balance sheet.
Cash flow insolvency occurs when a company cannot pay its debts as they fall due, while balance sheet insolvency occurs when a company’s liabilities exceed its assets.
Understanding the type of insolvency is crucial because it determines the available options for dealing with the financial difficulty.
The Insolvency Act 1986 provides various insolvency procedures that businesses can use to deal with financial difficulties. These include administration, liquidation, and voluntary arrangements.
• Administration is a process where an insolvency practitioner is appointed to manage a company’s affairs while a plan is developed to restructure the business.
• Liquidation is a process where a company’s assets are sold to repay its creditors.
• Voluntary arrangements are agreements between a company and its creditors to repay debts over time.
Director’s Duties and Liabilities
Directors have a duty to act in the best interests of their company’s creditors when the company is insolvent.
They must also avoid wrongful trading, which occurs when they continue to trade when they knew, or should have known, that the company could not avoid insolvency. Directors who breach their duties may face disqualification or personal liability for the company’s debts.
Creditors’ Rights and Remedies
Creditors have various rights and remedies available to them under the Insolvency Act 1986.
These include the ability to petition for a winding-up order, appoint an administrator, or challenge a voluntary arrangement.
Creditors’ rights depend on their position in the insolvency hierarchy, which determines the order in which they are paid.
Rescue and Recovery
Seeking professional advice from an insolvency practitioner is crucial for businesses facing financial difficulties. Early intervention can help explore options for rescue and recovery, including refinancing, restructuring, or selling the business.
Insolvency practitioners play a crucial role in helping businesses develop and implement a restructuring plan.
Conclusion Insolvency Act 1986
The Insolvency Act 1986 is a critical piece of legislation for businesses facing financial difficulties. Business owners must be aware of their obligations and act accordingly.
If you are a business owner facing financial difficulty and unsure of your options then contact us. We have a team of expert advisors who will talk through your problems and find the best solution for you and your business.
You can call our 24 hour freephone number on 0800 088 2142 or book a consultation below.