Is my company insolvent?
UK law uses two tests for company insolvency, and failing either one matters: can the company pay its debts as they fall due, and are its total liabilities greater than its assets? Enter your figures below for a plain-English read on both.
Apply the two tests
Indicative only. Contingent and future liabilities count in the balance-sheet test. This is not a legal opinion.
Source: Insolvency Act 1986, s123.
What the two tests mean in practice
If you are routinely missing payments to HMRC, suppliers or staff because the money is not there, the company may fail the cash-flow test even if it owns valuable assets. The balance-sheet test counts money owed in the future and contingent debts too. A company can be insolvent on one test but not the other. This read 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.
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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