Is my company insolvent?
UK law uses two tests for company insolvency, and failing either one matters. The cash-flow test asks a simple question: can the company pay its debts as they fall due? If you are routinely missing payments to HMRC, suppliers or staff because the money is not there, the company may fail this test even if it owns valuable assets. The balance-sheet test asks whether the company\'s total liabilities, including money owed in the future and contingent debts, are greater than its assets. A company can be insolvent on one test but not the other. This tool walks you through both in plain English and gives you an instant read. It is not a legal determination, but if it suggests your company is insolvent, that is your cue to take advice from a Licensed Insolvency Practitioner without delay. Insolvency Act 1986, s123
Apply the two tests
Once insolvent, you must put creditors first. Speak to a Licensed Insolvency Practitioner before taking any further action, to protect yourself and keep your options open.
Worked example using the figures above; change them to your own. Indicative only. Contingent and future liabilities count in the balance-sheet test. This is not a legal opinion.
Common questions
What are the two tests for company insolvency?
The cash-flow test asks whether the company can pay its debts as they fall due. The balance-sheet test asks whether the company's liabilities, including future and contingent ones, exceed its assets. Failing either can mean the company is insolvent.
What should I do if my company is insolvent?
Once a company is insolvent, directors must put creditors first and should take advice from a Licensed Insolvency Practitioner promptly. Continuing to trade without advice can create personal liability through wrongful trading.
Does being insolvent mean I have to close the company?
No. An insolvent company may still be rescued through administration or a CVA if the business is viable. Insolvency is the trigger for advice, not automatically for closure.
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