Is my company in trouble?
"In trouble" covers three different situations that need three different responses. A company that is short of cash but solvent has a financing problem. A company facing a statutory demand or a winding-up petition has an enforcement problem with legal deadlines attached. A company that fails the solvency tests has a director-duties problem, and the clock on that one is already running. This page tells you which of the three you are in, and nothing else. It does not sell anything.
Four numbers and one question
A reading of what you entered against the two statutory solvency tests. It is information, not advice, and it is not a substitute for speaking to a Licensed Insolvency Practitioner.
Why the distinction matters
Because the wrong response to the right problem is what turns a difficult quarter into a terminal one. Borrowing to trade through a period of genuine insolvency can expose a director personally and can amount to wrongful trading. Equally, treating an ordinary working-capital squeeze as an insolvency event can end a viable business that simply needed different funding. The tests below are the ones that actually matter in law, which is why they are the ones used here.
The two solvency tests
- The cash-flow test. Can the company pay its debts as they fall due? Not eventually, but when they are due.
- The balance-sheet test. Do total liabilities, including contingent and prospective liabilities, exceed total assets?
Failing either can mean the company is insolvent, and from that point a director's duties shift toward the interests of creditors rather than shareholders. That shift is the single most important consequence on this page.
Who we are
LTD Turnaround is an independent information service. We do not provide legal, insolvency or financial advice. If you get in touch, our editorial desk reviews your situation and, where that is the right route, points you to a Licensed Insolvency Practitioner. We do not lend, arrange finance or refer anyone to a lender or broker, and no lender, broker or practitioner pays us anything.