Is it Possible For the Insolvent to Avoid Bankruptcy?

When a firm becomes insolvent, it is possible for it to avoid being sued for bankruptcy. Becoming bankrupt is a serious issue and must never be taken lightly. A creditor can sue you for bankruptcy for just £750. If you are sued for bankruptcy, you can negotiate with your creditors and reach an agreement with them. If the court sees that your liabilities exceed your assets and you will not be able to repay your debts, they may move on declaring you bankrupt.

You can become insolvent due to a number of reasons. A business can become insolvent due to a number of reasons. In most business cases, the business owners cannot manage their cash flows and their liabilities exceed their assets. Business owners should try and reschedule their payments and tighten up their cash inflows. Recovering outstanding debts, shortening their invoicing and payment cycles and cutting down on expenses can save a business outfit from being sued for bankruptcy.

Expenses of any business venture are quite constant, rent, staff salaries, insurance, payment to suppliers have to be made regularly. The amount of money that comes into a business is vital, as expenses have to be met from them. If a firm cannot meet their cash outflows with their inflows, they can land in serious trouble.

A business only remains profitable if the cash coming into the business exceeds the expenditures that it incurs. If a business starts losing its cash flow, it can land in trouble very fast. Without cash, coming into a business or slowing down of the inflow creditors can start demanding payments and threatening suing for bankruptcy.

In case a business does become insolvent, there are various measures it can take to avoid bankruptcy. The first step would be to get the debts that are owed rescheduled. That is possible if the business expects payments at future dates and can repay their debts. This would be an informal agreement that can be made with the creditors to avoid the matter being taken to court.

A second solution could be that the business gets a company voluntary arrangement. This arrangement with creditors is formalized through a court. For this, the company would need to hire an insolvency practitioner.

A company can apply in the county court for an administrative order. If the administrative order is granted, requirement to pay creditors will be suspended temporarily. An insolvency practitioner will be hired to either find a buyer for the business or find a buyer for part of the business, or to restructure debts with the creditors. This will give the company some breathing space and give it time to straighten out its cash flow and pay its debts.

Creditors can ask a company to go into receivership. The job of the receiver will be to sell company assets and pay off the creditors. Once the debts are paid off, the business is handed back to the owners.

There are several options that a company that is insolvent can adopt to save it from going into bankruptcy.