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Ask J.Ustinovskaya Your Own Question
Category: Law
Satisfied Customers: 31
Experience:  Expert
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I have a quick question on insolvency and would welcome some

Customer Question

Good Morning, I have a quick question on insolvency and would welcome some advice.
JA: Where are you? It matters because laws vary by location.
Customer: England
JA: What steps have you taken so far?
Customer: Nothing so far as still trading - - hence the need for some advice
JA: Is there anything else the Lawyer should know before I connect you? Rest assured that they'll be able to help you.
Customer: Not that I am aware of
Submitted: 20 days ago.
Category: Law
Expert:  J.Ustinovskaya replied 20 days ago.

Dear Client, thank you for your query. My name is***** am a solicitor and will be assisting you today. Are you trading as a company or as a sole trader? What is your question?

Customer: replied 20 days ago.
Hi Julia, thanks for taking my question - the issue is it is a company limited by guarantee and also has charitable status
Customer: replied 20 days ago.
The question is if you have had a bad year of trading which puts you into a deficit on the balance sheet - yet you have built up significant cash reserves in the next financial year above the deficit - how is this viewed legally - are you now trading from an insolvent position?
Customer: replied 20 days ago.
Hi- can I just check you have received my question please. thanks
Expert:  J.Ustinovskaya replied 20 days ago.

Yes, I received the question, thank you. Will reply to you shortly.

Expert:  J.Ustinovskaya replied 20 days ago.

To determine, if a company is insolvent or not, there are several tests set in sections 122-123 of the Insolvency Act:

1) Balance sheet test: the court is satisfied that the company's assets are less than its liabilities, including contingent and prospective liabilities

2) Cash-flow test: Court is satisfied that the company is unable to pay its debts as they fall due

3) Failing to pay, secure or compound a claim for a sum due to a creditor exceeding £750 within 3 weeks of having been served with a statutory demand

4) Execution or other process issued on a judgement, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part.

If you are a director of the company and you know that one of the above tests is satisfied, you may be committing a wrongful trading unless you have taken all reasonable steps to minimize the loss to the creditors. If you feel that your company is at risk of insolvency, in order to minimise the loss, you may consider approaching creditors to restructure the debt on more favourable terms or allow more time to pay or attempt to refinance through obtaining fresh investments.

Please let me know if I have answered your query and if you have further questions.