Insolvency and bankruptcy

Introduction

If you cannot pay your business debts when they become due, or if the assets of your business are less than your debts, your business is insolvent.

Unless you pay those debts quickly, then the insolvency may lead to bankruptcy or winding up. Bankruptcy applies to individuals such as sole traders and those that have given personal guarantees for loans. Winding up and liquidation apply to companies.

Becoming bankrupt may involve restrictions, but the situation is less onerous for individuals whose businesses have failed through no fault of their own. Most are discharged from this process within 12 months although there can be longer term effects on their credit rating. However, if you are made bankrupt your personal assets, not just your business assets, may be lost.

Insolvency rules differ slightly in different parts of the United Kingdom. There are separate departments that deal with insolvency in Scotland and Northern Ireland.

This guide describes how bankruptcy or winding up can be avoided.

Subjects covered in this guide

• Introduction
• Avoiding bankruptcy and winding up
• Voluntary arrangements
• Administration and administrative receivershi5
• Winding up and liquidation of companies
• Insolvency of partnerships
• Bankruptcy of individuals
• Official receiver and insolvency practitioners
• Effect of insolvency on employees
• Long-term effect of insolvency

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