Business failure
Facing Financial Difficulties in Business
Although the DTI have recently published a report exploding the myths about some of the risks business face (revealing that over 80% of new businesses survive their first year), it is still true to say that many businesses don't last much longer.
Running a company is risky and running into financial difficulties is a common problem.
Bankruptcy applies to people such as sole traders and those that have given personal guarantees for loans. Winding up and liquidation apply to companies.
As a director of a business in trouble, it is up to you to decide whether your business should continue trading or cease trading. If you do not, you may end up having to pay for the company's losses from your own pocket while being investigated by the DTI.
If a director is aware that the company is going to become insolvent but continues to trade anyway, by law the director must cease trading and liquidate the company. If a director trades insolvent, they could be liable for wrongful trading and can only escape liability if they can prove they took steps to minimise the loss to creditors as soon as they were aware of the insolvency. Ultimately, as a director, you can only decide to trade on if it is likely that the business will avoid insolvency.
So how do you decide whether to trade on or not?
Assess the daily and weekly cash flow of the business and keep an eye on the finances.
Record or note down minutes from meetings about financial issues.
Review any decision to continue trading periodically.
Get help if financial issues swamp the day to day trading of the business.
If your business is in trouble, please get in touch and our advisors will help you plan your next steps.
Business failure
Business failure: Business failure: Business failure
Business failure: How to reduce business risk
Business failure: Reasons for business failure
Business failure: Rescue company
Business failure: End company
Business failure: What are a directors responsibilities
Business failure: What happens to your employees?
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