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Published on June 14th, 2014 | by Pete

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Insolvency – what is it all about?

Now, if you’re like me, you may not know much about the concept of insolvency, both on a personal, or a business level. I thought I’d do a bit of digging to help shed some light on the concept, as there have been some fairly high profile companies struggling to cope with this phenomenon in recent years (Woolworths, HMV, Blockbuster, to name a few). It also seems to be causing quite a few problems, on a consistent basis, in the world of football. So what the devil is this insolvency business all about?

In a nutshell, insolvency is the inability of a debtor to pay their debt. In many sources, the definition also includes the phrase “or the state of having liabilities that exceed assets” or some similar phrase. It’s like landing on a hotel in Mayfair, when you only have £3 and a ‘get out of jail free card’. This state of affairs can apply to both an individual, and a business. Luckily, there is support for both parties. If you are an individual, you can get support from the CAB (Citizens Advice Bureau) who can offer great advice, for free. If you have a business that is insolvent, or heading that way, you can also get support, from firms such as Wilson Field, who are specialists in dealing with business problems such as these.

So, how much of a problem is business insolvency then? Well, according to the Government Insolvency Statistics there were 3,721 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the first quarter of 2014. This includes 1,072 compulsory liquidations in 2014 (non-adjusted) and 2,649 creditors’ voluntary liquidations (on a seasonally adjusted basis). This was an increase of 4.8% on the previous quarter, and 4.9% more than the same quarter in 2013. So, it seems that it might be a problem on the rise.

There are a number of different options available to you if you find your company in danger of becoming insolvent, of if you have already reached that position. It mostly involves the process of restructuring your debt, so that it can be managed and repaid. Debt restructurings are typically handled by professional insolvency and restructuring practitioners, and are usually less expensive and a preferable alternative to bankruptcy. Debt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.

So there we have it, a little bit of information about what insolvency means, and what to do if you find yourself in that position. My biggest piece of advice – never delay. If you see an iceberg ahead, make sure you can avoid it by taking steps to tackle the problems.

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