What exactly is insolvency?

[nigel2008]

I am not an accountant. I have been reading various threads on here regarding people asking for advice surrounding limited company insolvency.

How does one determine if a company is insolvent?

If you owe money to creditors which you are paying by arrangement by installments and where there has been no mention of court action and no CCJ etc. does that make the company insolvent?

I read somewhere that a company should always be in a position to pay its debts 'as and when they fall due' - so is paying back money due to a supplier - where the original invoice was issued and due for payment over one year ago - but making variable payments 'as and when' one has the money and with that accepted by the creditor - does that mean that the company is actually insolvent and should be looking at ceasing to trade?

I have also read that owing a creditor as above can to fraudulent or wrongful trading - if the company has no chance of 'trading out' of the situation - but surely in the above scenario they do have a chance of trading out because the creditor is accepting ad hoc payments without taking any further action. And the creditor has previously submitted invoices that have been paid 'on the nose' in full.

And finally! What is the position if a company has an unsatisfied CCJ against it - surely that means that the company is insolvent - it hasn't repaid the creditor - creditor has had to take court action - creditor has judgment - but debt still unpaid - is that company therefore insolvent?

Thanks for reading.

N

 

[Scalloway]

Insolvency can be defined as when an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due. Being able to pay agreed instalments to your creditors means that financial obligations are being met. However it just takes one creditor to insist on full payment and the house of cards collapses.

 

[Lisa Thomas]

In a nutshell Wrongful trading comes about when a Director knows the Co is insolvent and they can't avoid Liquidation but continues trading anyway and by the time Liquidation takes place the creditors are owed a lot more that there were.

Sometimes company's trade out of insolvency and sail off into the sunset.

It's when that doesn't happen that they have a problem.