Licensed Insolvency Practitioners advise on formal insolvency, restructuring, and early-stage financial planning. Dave Broadbent, one of our trusted licensed Insolvency Practitioners, explains when you may need to approach an Insolvency Practitioner, the common trigger points, and what contacting an Insolvency Practitioner means for your company.
When should I contact a licensed Insolvency Practitioner?
The best time to approach a licensed Insolvency Practitioner is before insolvency or as part of future planning. This maximises the range of options available, which can prevent further losses and inefficiencies. The directors who contact us often assume that contacting an Insolvency Practitioner means the inevitable closure of their business, however, in reality, a licensed Insolvency Practitioner can often prevent insolvency if approached early.
The warning signs that you should contact a licensed Insolvency Practitioner include:
- Cash flow problems, as your company cannot pay its debts
- HMRC debts, as your company cannot pay HMRC
- Creditor pressure, as suppliers are demanding payment
- Funding problems, overdraft at limit and personally funding the business
- Threats of legal action from creditors, such as a winding up petition
- Growing inefficiencies making the company loss-making
Early action is key when contacting a licensed Insolvency Practitioner. A creditor that is yet to apply full pressure may be more inclined to offer flexibility around payments, rather than a creditor that has already issued a winding up petition or where a Time to Pay arrangement has failed.
Should I contact a licensed Insolvency Practitioner when creditor pressure builds?
When formal creditor pressure builds, this is a sign that you must contact an Insolvency Practitioner. Understand what the most significant forms of creditor action are and what each of them means.
- A County Court Judgment (CCJ) registered against the company damages the company's credit rating and can be enforced through bailiff action or charging orders against assets
- A statutory demand issued by a creditor gives 21 days to pay the debt. If unresolved, the creditor can present a winding up petition to court
- A winding-up petition presented to court is advertised in the Gazette, after which the company's bank account is typically frozen. The company cannot dispose of assets or make payments without court permission. If the petition succeeds, the company is placed into compulsory liquidation by the court. There is a limited window during which the petition can be contested
- HMRC enforcement action to recover unpaid tax, including the use of field force officers, debt collection agencies, and, in serious cases, the seizure of assets under the Taking Control of Goods process. Following HMRC’s crackdown on unpaid tax, we are seeing more businesses receive debt letters from HMRC threatening enforcement action, regardless of their debt value
- A landlord threatening forfeiture of business premises can bring trading to an immediate halt
Each pressure carries specific legal consequences and timeframes, and the window for securing breathing space considerably narrows once creditor action has begun. A licensed Insolvency Practitioner can advise on the options available and the timeline.
When is an Insolvency Practitioner needed to help rescue a company?
- Restructuring – when trading difficulties are identified early, an Insolvency Practitioner can help restructure debts and finance arrangements, often through pre-insolvency advisory or company rescue and turnaround support.
- Company Voluntary Arrangement (CVA) – suitable when the business is viable and can generate enough income to repay its debts over time. A CVA allows the company to keep trading and clear debts in an affordable manner.
- Administration – worth considering when a company is under creditor pressure, but could still be rescued or sold as a going concern. When a company enters administration, a moratorium is put in place which protects the company from creditor action.
When does a company need an Insolvency Practitioner to close?
- Solvent company – a company that can pay all its debts in full within 12 months and wants to formally close and distribute remaining assets in a tax-efficient way, typically through a Members' Voluntary Liquidation (MVL). An MVL requires a licensed Insolvency Practitioner to act as liquidator.
- Insolvent company – a company that cannot pay its debts and has no realistic prospect of rescue is usually closed through a Creditors' Voluntary Liquidation (CVL), which a licensed Insolvency Practitioner must handle.
Does contacting an Insolvency Practitioner mean liquidation?
Contacting an Insolvency Practitioner does not mean company liquidation by default; the earlier advice is sought, the greater the chances of rescuing the business. Some directors who reach out to us are not insolvent and may never become insolvent, they simply want to take early action before conditions deteriorate. Pre-insolvency advisory is one of the most common reasons directors make contact.
If your company is nearing insolvency or is already insolvent, an Insolvency Practitioner will do all in their power to save the company. This may involve negotiating debts with creditors, including HMRC, securing a buyer for the business, or entering administration to protect the business from immediate creditor pressure. A company is usually insolvent if it cannot pay its debts as and when they fall due (cash flow insolvent), or when liabilities outweigh assets (balance sheet insolvent). If you continue trading after becoming insolvent, this can give rise to personal liability for wrongful trading under section 214 of the Insolvency Act.
"A recent example includes supporting a construction company, just days away from receiving a winding up petition, following threats of serious court action from creditors. The company owed over £625,000 in PAYE, Corporation Tax, and VAT, £54,000 to trade creditors, and a small sum to employees in overdue wages.
Following successful negotiations with HMRC, a Time to Pay arrangement was agreed. This gave the business the breathing room it required to settle unpaid wages and enter a payment plan with its main trade creditor. The director contacted a licensed Insolvency Practitioner in response to escalating creditor pressure, avoiding compulsory liquidation."
What happens when you make contact
When you contact a licensed Insolvency Practitioner, they will typically offer a no-obligation consultation, free of charge. They will ask about your company's financial position, debt value, trading outlook, and any immediate pressures you are facing, such as creditor threats. On that basis, they will set out which options are available, considering both formal and informal procedures. For more information on what happens after appointing a licensed Insolvency Practitioner, read our guide that covers who appoints one, how creditor communication changes, and ongoing director duties.
If you are in the process of choosing a licensed Insolvency Practitioner, check what to look for in an Insolvency Practitioner, and use our directory to find a reputable licensed Insolvency Practitioner.
