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Insolvency Firms – Why Are More Businesses Going Insolvent?

Companies in a financial position that is unlikely to improve in the short term will likely need to seek formal insolvency advice. This is a key step in protecting the interests of creditors, and it also offers the company the opportunity to identify and implement changes that could improve its financial health and allow it to continue trading.

Insolvency firms provide support and guidance to companies and individuals facing financial difficulties, whether this is through liquidation, administration or bankruptcy proceedings. They can help with the filing of bankruptcy petitions, preparing for insolvency, and arranging for the sale of the company’s assets to repay debt. Insolvency laws can be complex, and it’s important to find a qualified insolvency professional who can provide the right advice for your circumstances.

Why are more businesses going insolvent?

There are a number of reasons why companies may be at risk of insolvency, and the first is poor cash flow management. If a company is not closely monitoring its cash inflows and outflows it may miss payment deadlines, which can lead to late fees and additional charges from suppliers. This can quickly add up and lead to a cash shortfall, which can cause a company to cease trading.

Another reason is rising costs, which can be hard for a business to predict and plan for. If a company needs to pass on increased costs to consumers, this can lead to them losing clients. Once a company loses clients, it stops receiving income, which can mean that bills and other debts are not paid.

Lastly, poor hiring practices and HR issues can be a contributing factor to insolvency. If a company hires staff that don’t have the skills or experience required, this can affect productivity and create a negative impact on the business. This can lead to a loss of revenue and an inability to meet debt repayments, which can then contribute to insolvency.

It is important to note that a company can remain solvent even when it is undergoing insolvency procedures. In fact, the insolvency process often leads to improvements in cash flow and a reduction in outstanding liabilities. This is because the insolvency process provides increased transparency and regular reporting to stakeholders, and often includes access to expert advice and assistance.

As a director, you have specific functions and obligations under the law in how your business is conducted, and one of these is to place the interests of creditors above those of yourself or other shareholders. This means that you must not engage in any activity that could worsen a company’s position or increase its losses, and this includes adding to its debt or stripping it of its assets. Failure to comply with these requirements can lead to personal liability for the company directors and could potentially result in them being sued by creditors. It is advisable to seek legal advice from a licensed insolvency practitioner to ensure that you understand the insolvency process and what your rights are as an employee or creditor.

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