Insolvency

Insolvency exists in two forms: cash flow insolvency (inability to pay debts as they fall due, even if assets exceed liabilities) and balance sheet insolvency (total liabilities exceeding total assets). A business can be profitable on paper but cash-flow insolvent if customers pay slowly and obligations fall due quickly.

Formal insolvency proceedings include administration, company voluntary arrangement (CVA), and liquidation. Directors of insolvent companies have specific legal obligations and should seek professional advice promptly. Trading while insolvent can result in personal liability for directors.

For lenders, insolvency of a director or a related business in recent history is a significant negative in credit assessment. Previous insolvency does not automatically prevent access to finance, but it must be disclosed and will narrow the lender options available. Specialist lenders on the Spark Finance panel assess applications on their current merits alongside historical context.

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