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The financial landscape is changing and evolving in a way we have never seen before. This uncertainty means it’s hard to think about the long term. In times of crisis it may feel that firefighting is all you can do.

Whilst you may think your company could be heading for insolvency, it might not be the case. In part three of our companies in crisis Q&A series aimed at company directors, senior litigation lawyer Alexander Neale explains the different scenarios that would mean a company is insolvent.

Key points

A company is normally considered insolvent if it cannot pay its debts when they are due.

Statute provides for two simple tests to show that a company is insolvent:

  • Cash flow test – where a company cannot pay debts as and when they fall due
  • Balance sheet test – where the value of a company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

If you think your company may become insolvent, our insolvency experts can talk you through your options.

To watch previous videos from our companies in crisis series, please click on the titles below.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.