Problems are encountered when an individual or entity is unable to pay their debts as they fall due. There may be a number of reasons for this including a loss of or delayed cash flow or the size or timing within which debts have to be paid. Unfortunately, many debtors fail to prioritise the manner in which their indebtedness is to be addressed and whether or not some form of instalment arrangement should be entered into with creditors. As the debt ages creditors endeavour to have the debt(s) paid, failing which they may engage commercial agents or lawyers to pursue the debt. If direct contact is not successful then a letter(s) of demand is dispatched and if disregarded normally court proceedings ensue.
Initiating process is by way of statement of claim or garnishee where individuals are involved or by way of statement of claim or a statutory demand with companies. Apart from voluntary liquidation, once a judgment debt and a certificate of judgment have been obtained from the relevant court these can be enforced leading to bankruptcy or liquidation depending on the entity concerned. Bankruptcy has serious ramifications for those involved and can lead to the bankrupt’s affairs being administered for a period of up to eight years. Either voluntary liquidation or liquidation means that the company is wound up and ceases to exist as an independent, legal personality. Irrespective of the circumstances, the credit of the individual or entity is destroyed for a period of time imposing onus credit restrictions on those involved.
If companies run into financial trouble and continue to trade, they are involved in insolvent trading meaning they have insufficient funds to meet their debts as they fall due. In these circumstances directors of the company become personally liable and may be called upon by creditors to satisfy the debts of the company. Unfortunately, over the last 10 years there has been an increase in phoenix company activity. This is where one company transfers all its business assets to another company, winding up the first company hoping to avoid paying its creditors.
Given that there are serious consequences for company directors, they need to be mindful that early intervention is required. The first step they should take is to satisfy themselves about the financial position of the company, following which they should seek independent legal advice – not only with regard to the company’s position but also their personal circumstances – given that they could be held liable for the company’s debts.
CGH Accounting are not insolvency practitioners or bankruptcy trustees but work closely with our clients to avoid insolvency or bankruptcy; potentially directing them to our associated insolvency accounting and legal firms in an endeavour to achieve the best possible results for them in this difficult area. CGH Accounting will assist secured and unsecured creditors, companies and individuals around their exposures and related issues & consequences – for their organisation and/or personally.
Please do not hesitate to contact us now by phone or by filling in the form at the bottom of the page.