Licensed Insolvency Practitioners advise on restructuring, refinancing, and early-stage financial planning, in addition to formal insolvency. Dave Broadbent, one of our trusted licensed Insolvency Practitioners, sets out the situations where making contact is the right decision and why early intervention can maximise the range of options available.
When to approach a licensed Insolvency Practitioner
Many directors assume that contacting a licensed Insolvency Practitioner is most suitable when the business has already reached a crisis point. In reality, the earlier the conversation, the more options remain open. Making contact is a practical step toward understanding your financial position clearly.
When speaking with directors, they often say that they assumed contacting an Insolvency Practitioner meant the inevitable closure of their business. In reality, the earlier the conversation, the greater the options. In my experience, the common triggers include:
- When financial pressure is building
- When cash flow becomes difficult to manage
- When creditor pressure begins
- When the business is viable, but the debt is not
- When you are personally funding the business
In addition to formal procedures such as administration, liquidation, and Company Voluntary Arrangements (CVAs), licensed Insolvency Practitioners advise on restructuring, refinancing, turnaround, and pre-insolvency planning.
Contacting an Insolvency Practitioner is not crisis contingent
Some directors who reach out do so when their company is not insolvent and may never become so. They are looking for a confidential, professional assessment of their financial position, and want to understand the options available should conditions deteriorate.
Pre-insolvency advisory is one of the most common reasons directors make contact. A licensed Insolvency Practitioner can review your financial position, identify the pressures that are building, and set out which routes are realistically available, given your current circumstances.
"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."
When financial pressure is building
The clearest signal that advice is warranted is a gap between what the business owes and what it can pay, even if that gap is yet to become critical. Directors regularly come to us at this stage describing situations that include:
- Cash flow that is consistently tight at month end, with payments to suppliers or HMRC being stretched or delayed
- Working capital being used to service debt, rather than support day-to-day trading
- Overdraft facilities regularly at or near their limit, with no headroom for unexpected costs
- Margins compressing to the point where the business can no longer absorb cost increases
- A major contract lost, a key customer entering insolvency, or a significant bad debt
Based on my experience, the severity of creditor pressure often determines the range of options available. A creditor yet to threaten court action, such as a winding up petition, may be inclined to extend more flexibility when negotiating debts than HMRC, where a Time to Pay arrangement has failed.
When cash flow becomes difficult to manage
If your company is regularly unable to pay its debts as they fall due, it may be technically insolvent under the Insolvency Act 1986. This is known as the cash flow test for insolvency, and it is at this point where directors' legal duties shift significantly.
Once a company is insolvent, continuing to trade in a way that worsens the position for creditors can give rise to personal liability for wrongful trading under section 214 of the Insolvency Act. This is an area that Insolvency Practitioners investigate once appointed as liquidators.
It is at this stage that many directors seek advice. Common situations include sustained HMRC arrears across PAYE, VAT, or Corporation Tax, supplier debts falling further behind despite ongoing payments, and a bank or lender that has reduced facilities or rejected extending existing facilities.
When creditor pressure begins
Formal creditor action is a clear sign that professional insolvency advice is necessary. The most significant forms of pressure, and what each of them means in practice, are set out below.
- 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 narrows quickly once creditor action has begun. A licensed Insolvency Practitioner can advise on what options are available and the timeline.
When the business is viable, but the debt is not
A significant number of directors who seek advice are running businesses that are viable, but carrying unserviceable levels of debt.
In these situations, a CVA or a structured turnaround may allow the business to continue trading while addressing its debt position. A CVA is a formal agreement between a company and its creditors to repay outstanding debts over an agreed period, typically at a reduced level, while the business continues to operate. For the proposal to succeed, it requires approval from creditors representing 75% of the debt value.
When you are personally funding the business
Directors who are injecting personal funds to keep the business trading, waiving their salary, or extending personal guarantees to cover operational costs are often doing so as a last resort.
Injecting personal capital into an insolvent or near-insolvent company can put your personal finances at risk if the company fails. Directors who also continue to trade while insolvent, or allow the creditor position to worsen without taking professional advice, can be held personally liable for company debts.
What happens when you make contact
An initial consultation with a licensed Insolvency Practitioner is free of charge and confidential. All practitioners listed on this directory are fully qualified and regulated by recognised professional bodies, including the Insolvency Practitioners Association (IPA) and the Institute of Chartered Accountants in England and Wales (ICAEW).
In the first conversation, a licensed Insolvency Practitioner 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.
Use the directory to find a licensed Insolvency Practitioner with direct experience in your sector.
When should a director seek professional advice?
For directors carrying significant tax arrears, whether that is an overdue VAT bill, a PAYE shortfall, or corporation tax that has been deferred since the pandemic, professional insolvency advice must be sought without delay.
The clearest trigger is correspondence from HMRC indicating that a Time to Pay arrangement is at risk, that a debt has been passed to a field force officer, or that a winding up petition is being considered. At any of these stages, speaking to a licensed Insolvency Practitioner is appropriate.
However, the directors who tend to achieve the best outcomes are those who seek advice before HMRC reaches that point. A licensed Insolvency Practitioner works with business directors carrying HMRC debt on a regular basis. They understand how HMRC operates, their appetite for debt negotiations, and how a company's tax position fits into its broader financial picture.
