Small business licensed insolvency practitioner support, coordinated by us

Wrongful trading occurs when directors continue to trade while knowing (or reasonably should know) that the company cannot avoid insolvency.

Once this point is reached, directors must act to minimise losses to creditors. Failure to do so can lead to personal liability.

Warning signs include:

• Inability to pay debts as they fall due
• Liabilities exceed assets
• Reliance on constant creditor extensions
• Mounting HMRC arrears
• Cash flow deterioration
• Signs of creditor legal action or statutory demands
• No realistic rescue plan

Insolvency is often a combination of these tests, not just one.

Taking professional advice early is one of the strongest protections against wrongful trading claims.

Fraudulent trading involves deliberate intent to defraud creditors. Examples include:

• Taking credit with no intention of paying
• Falsifying records
• Using company funds for personal purposes
• Misrepresenting the company’s position

This can lead to:

• Personal liability
• Director disqualification
• Civil penalties
• Criminal prosecution

Early advice significantly reduces risk.

An overdrawn director’s loan account becomes a serious issue in insolvency.

If the company enters liquidation:

• The insolvency practitioner must attempt to recover it
• You may face tax charges
• Repayments may be demanded

Beware if there are no accumulated profits, dividends paid may actually be classified as an overdrawn directors loan account.

Offsets (such as unpaid salary or expenses) may reduce exposure — but this must be handled carefully and properly documented.

You can talk with the insolvency practitioner as to their proposed course of action before starting the insolvency process.

If you’ve lent money to the company:

• You are treated as an unsecured creditor
• Repayments made shortly before insolvency can be challenged
• Secured loans (via a properly registered debenture) rank higher (tip: make sure you do this when lending money to your company)

This is why structure matters before problems arise.

No, resigning does not remove responsibility.

If you resign while insolvency issues exist:

• Your past conduct can still be investigated
• You may still face wrongful trading claims
• Creditors or the Official Receiver may scrutinise your actions

Doing nothing often makes matters worse and can result in personal liability.

Bounce Back Loans are unsecured — but misuse can create personal liability.

Risks include:

• Using funds for personal spending
• Repaying personal debts
• Providing false information on the application
• Preferential repayments

If misuse is found, consequences may include:

• Personal repayment demands
• Director disqualification
• Fraud investigations

Early advice can help mitigate exposure.

Yes, in many cases.

A Time To Pay (TTP) arrangement may be possible if:

• The business is viable
• You can demonstrate affordability
• You act before enforcement begins

HMRC will often request:

• Cashflow forecasts
• Up-to-date filings
• Evidence of effort to explore other funding options

Handled properly, TTP can prevent escalation. It stops additional penalties but doesn’t eliminate interest.

A winding-up petition is extremely serious and time-sensitive.

Once advertised:

• Bank accounts are usually frozen
• Credit access disappears
• Trading becomes extremely difficult

Petitions are often triggered after:

• A statutory demand is ignored
• HMRC or a creditor believes debts cannot be paid

There is a short window to act.

Possible solutions include:

• Proposing a CVA
• Negotiating a Time To Pay arrangement
• Applying for administration
• Challenging the debt (if genuinely disputed)

If the court grants the order, the company enters compulsory liquidation and directors lose control immediately.

Early action can stop or suspend the process, delay usually removes options.

A CVA is a formal agreement allowing a company to repay part of its debts over time while continuing to trade, taking the pressure off, and avoiding liquidation or administration with no formal investigation into the directors conduct.

Key points:

• Requires approval from 75% of voting creditors (by value)
• Directors stay in control
• Legal protection from creditor action
• HMRC debts included

The insolvency practitioner drafts a detailed proposal outlining why the CVA is a better option than insolvency for creditors.

The repayment percentage may range from perhaps just 5% to a full 100% depending on the company’s financial situation.

The company should be insolvent or at risk of insolvency.

All unsecured debts are rolled into one affordable monthly payment, usually spread over 1 to 5 years. Secured debts are excluded and will need to be negotiated separately.

Shareholders cannot receive dividends during the CVA process.

It’s often suitable where the business is viable but overburdened. Employees and clients are often unaffected.

Administration provides immediate legal protection from creditors.

An insolvency practitioner takes control to:

• Rescue the business
• Sell it as a going concern
• Or maximise asset value to distribute to creditors.

It may involve:

• A pre-pack sale
• Business restructuring
• Orderly wind-down

Directors lose control, but it can preserve value and jobs.

A pre-pack involves selling the business immediately upon entering administration.

In this process, a company’s assets are sold to a new company (“newco”), which may be managed by the same directors or purchased by a third party. This sale is usually arranged before the original company (“oldco”) formally enters administration.

Pre-pack administration is ideal when:

• The company is insolvent and at risk from creditors
• Other options like refinancing or a CVA are not viable
• The business is fundamentally sound but cannot survive under the weight of historical debts
• Jobs and value can be preserved by transferring operations to a new company.

Key features:

• Sale agreed in advance
• Often to a new company
• Assets transferred at fair value
• Employees may transfer under TUPE

Used correctly, it can:

• Preserve operations
• Protect jobs
• Achieve better creditor outcomes

Rules apply to prevent abuse.

A “phoenix company” is a new business that acquires the assets of an insolvent one and continues trading.

This can be legal, but only if done correctly.

Key points:

• Assets must be sold at fair market value
• Sales must usually be handled by an insolvency practitioner
• Creditors’ interests must be protected
• Strict rules govern reuse of the old company name
• Directors must comply with statutory restrictions

Done properly, phoenix arrangements can preserve jobs and value. Done badly, they can lead to director disqualification or personal liability.

A CVL is used when a company cannot continue and needs to close and is initiated by the directors.

It allows:

• Controlled closure
• Appointment of a licensed liquidator
• Distribution of assets
• Investigation of directors’ conduct
• Final closure

It is usually preferable to compulsory liquidation.

Directors may also be eligible for redundancy payments.

A creditors’ voluntary liquidation (CVL) gives directors control and protection.

Compared to compulsory liquidation:

• Faster and more orderly
• Avoids court proceedings
• Less adversarial
• Reduced scrutiny when handled properly
• Directors choose the insolvency practitioner
• Better communication and planning

Compulsory liquidation removes control entirely and places the process in the hands of the Official Receiver.

If the company has no assets, directors may need to fund the process personally, but there is often help available.

Director Redundancy Claims can significantly reduce or even cover the cost:

Eligibility usually requires:

• At least 2 years on payroll
• Evidence that you were an employee, as well as a director
• PAYE salary (not dividends only)

This option is frequently overlooked and should always be explored.

An unfair preference occurs when one creditor is paid in priority to others shortly before insolvency.

This often includes:

• Repaying loans to friends or family
• Repaying yourself
• Clearing personally guaranteed debts
• Paying connected parties first

These payments can be challenged and reversed by a liquidator.

Time limits:

• Up to 6 months before insolvency for unconnected creditors
• Up to 2 years for connected parties

If found, directors can face:

• Repayment orders
• Personal liability
• Increased scrutiny of conduct

This is why “trying to tidy things up” before insolvency can backfire badly without proper guidance.

Doing nothing is usually the worst option.

If the company cannot afford a formal liquidation, some directors wait for creditors to force the issue. This often creates bigger problems, not fewer.

Risks include:

• Prolonged Investigations
  The Official Receiver will examine your conduct in detail, often more aggressively than in a voluntary process.
• Companies Being Restored To The Register
  Even if struck off, creditors can restore the company later, reopening scrutiny and stress.
• Increased Personal Exposure
  Delays can be interpreted as failure to act responsibly, increasing wrongful trading risk.

The safer route is to take control early by engaging a licensed insolvency practitioner. This demonstrates responsible conduct and often reduces personal exposure significantly.

Yes, and this is often where early advice makes the biggest difference.

Before formal insolvency, there may be practical alternatives, including:

Informal Negotiations

Negotiating directly with HMRC, landlords, lenders, or suppliers to restructure arrears or agree breathing space.

Refinancing Or New Investment

In some cases, shareholder loans, third-party investment, or refinancing can stabilise the business if there is underlying value.

Business Or Asset Sale

If the business has value (customers, goodwill, IP, contracts), a sale may be possible — but it must be handled carefully.

Important warning:
Selling assets without proper advice can create serious problems. Transactions carried out shortly before insolvency may later be challenged as:

• Preferences
• Transactions at undervalue

Attempts to avoid creditors

This can lead to personal liability. Always take advice before selling assets or restructuring.

In most cases, directors are not personally liable for company debts, and insolvency does not affect your personal credit record.

However, personal liability can arise if:

• You have given personal guarantees
• You have traded wrongfully or fraudulently
• You have taken improper payments or preferences
• You have breached your legal duties as a director

This is why early advice matters. When handled correctly, many directors exit insolvency without personal financial damage. When handled badly or too late, personal exposure increases significantly.

If your company is solvent, you may be able to close it via:

• Voluntary strike-off (for small balances)
• Members’ Voluntary Liquidation (MVL) for larger sums

An MVL can be very tax-efficient, allowing distributions to be taxed as capital rather than income.

Voluntary dissolution is a simpler, faster, and cheaper alternative to formal liquidation for companies without debts or disputes. It allows directors to wind down operations efficiently and avoid unnecessary costs.

Yes. Much of the guidance on this page applies not only to company directors, but also to designated members of Limited Liability Partnerships (LLPs).

While LLPs are structured differently, designated members carry legal responsibilities similar to directors when the LLP becomes insolvent. This includes duties to creditors, exposure to wrongful trading claims, and obligations to act once insolvency is likely.

If you are a designated member facing financial difficulty, it’s critical to seek advice early. The risks, protections, and available solutions often mirror those faced by limited company directors.

Different structures have different solutions.

Partnership Voluntary Arrangements (PVA)

A PVA allows a partnership to restructure its debts with approval from 75% (by value) of creditors. It works similarly to a CVA and can allow continued trading.

Individual Voluntary Arrangements (IVA)

Sole traders — or individual partners with personal exposure — may use an IVA to avoid bankruptcy. This can deal with both business and personal debts.

Because partners often have joint and several liability, individual partners may each need their own IVA depending on the structure of the debts.

As soon as you notice:

• Cash flow stress
• Creditor pressure
• HMRC arrears
• Concerns about personal exposure

Early advice = more options, less risk.

Insolvency fees vary depending on:

• The type of procedure (CVL, CVA, administration, etc.)
• Business size and complexity
• Number of creditors
• Level of investigation required
• Amount of work involved

You should always receive:

• A clear fee estimate upfront
• An explanation of what is included
• Transparency around funding

We introduce directors to licensed insolvency practitioners who provide competitive, transparent pricing, tailored to small businesses.

Be cautious of “free” or ultra-cheap offers — these often lead to poor outcomes, hidden charges, or inadequate protection.

Always ensure your adviser is properly licensed and regulated.