If you can t pay your business debts when they become due or if the assets of your business are less than your debts, you are insolvent.

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1 If you can t pay your business debts when they become due or if the assets of your business are less than your debts, you are insolvent. Insolvency can be a confusing subject involving many technical terms. Use this guide to demystify the jargon and understand: Does insolvency mean the end for your business? The options for dealing with corporate insolvency How to manage personal insolvency

2 Corporate insolvency. Dealing with corporate insolvency. Administration. CVA s. Liquidation or winding up.

3 Corporate insolvency Does insolvency mean the end for my business? No, but you must act quickly to make sure your situation doesn t get any worse. First, prepare a cashflow forecast with the help of your accountant. If the business has good prospects, identify ways of improving your cashflow by: obtaining more finance improving the way you manage your working capital leasing the assets you need and selling the ones you don t If the business is unlikely to survive you should: stop trading consult an insolvency practitioner (IP) try to pay your debts Note: companies and partnerships that carry on trading when there s no hope of recovery can be held liable for wrongful trading. See also: Monitoring your cashflow Exiting a failing business

4 Dealing with corporate insolvency The aim of an insolvent business is to pay back as many of its debts as possible. There are several ways of doing this: administration company voluntary arrangement (CVA) liquidation or winding up Administration Use this route if you hope to save your business. Who can put a company into administration? the company the directors anyone who holds a floating charge over the company any creditor by court order How administration works An IP will be appointed to act as administrator. They will run the business and negotiate with creditors. They will try to rescue the company as a going concern, but may take another course such as selling the business as a whole if that will mean a better result. If there s no alternative, the assets of the business will be sold to pay secured and/or preferential creditors. As the owner, you re protected from any further action by creditors to recover their debts while in administration. How long will administration last? Administration shouldn t take longer than a year, but this can be extended if creditors agree or a court orders it.

5 Company Voluntary Arrangements (CVAs) You can use this route to reach agreement on paying your debts. How CVAs work An insolvency practitioner (IP) will help you to prepare a proposal on how you ll repay your debts. There ll be a meeting with your creditors to negotiate the terms. If at least 75% of the creditors (by value) at the meeting agree, all creditors are bound by the arrangement. The IP will collect funds from you and distribute them until the agreement ends. As owner, you re protected from further action during a CVA. Liquidation or winding up Use this route if there is no hope of saving your business. There are two ways to end the life of a company: creditor s voluntary liquidation compulsory winding up Creditors Voluntary Liquidation The directors pass a resolution stating that the company can t continue. A meeting of the creditors is held. The creditors appoint an IP as liquidator to sell the business s assets and repay any debts. The directors wind the company up. Compulsory winding up A creditor owed 750 or more makes an application to court for a company to be wound up. A receiver will call a meeting of the creditors and appoint an IP to liquidate the company. The official receiver will wind the company up.

6 Personal insolvency. IVA Administration order Bankruptcy.

7 Personal insolvency How to manage personal insolvency There are several options for repaying your debts: individual voluntary arrangement administration order bankruptcy Individual voluntary arrangement (IVA) You can use this route to reach agreement on paying your debts. How an IVA works An insolvency practitioner (IP) will help you to prepare a proposal on how you ll repay your debts. A meeting will held with the creditors to negotiate the terms. If at least 75% by value of the creditors at the meeting agree all creditors become bound by the arrangement. The IP will collect funds from you and distribute them until the agreement ends. As owner you re protected from further action during the CVA. But if you break the agreement, the IP can apply to have you made bankrupt. Administration order Use this route if your debts are less than 5,000 and at least one of your creditors has a county court judgment against you. How an administration order works The court puts together a plan for the repayment of your debts. You pay the court a series of instalments. You re protected from further claims while the order is in place.

8 Bankruptcy Use this route if you have no alternative. Who can make a person bankrupt? The person themselves. Any creditor owed 750. How bankruptcy works The person applying for the bankruptcy makes an application to court. The court will declare bankruptcy. An official receiver will take over your affairs and responsibility for paying your debts. An insolvency practitioner (IP) may also be appointed to help sell your assets. When assets are sold the money will be paid over to the IP or receiver to settle your debts. You ll be allowed to keep assets necessary for your basic domestic needs or business. You won t be able to borrow more than 500 without declaring your bankruptcy. You may need to contribute some of your income to pay your debts. You can t be a company director while bankrupt. How long does bankruptcy last? You will be referred to as an undischarged bankrupt for one year. After this, the receiver can continue to sell your assets if your debts aren t paid. You might need to carry on contributing income for another two years. Your credit rating could be affected for many years.

9 Useful links Business Link advice on insolvency and bankruptcy The Insolvency Service Companies House information on liquidation and insolvency Insolvency Service guides Business Link advice on alternatives to bankruptcy

10 We aim to provide the highest level of customer service possible. However, if you experience a problem, we will always seek to resolve this as quickly and efficiently as possible. A copy of our How to voice your concerns leaflet can be obtained in branch or by contacting your relationship team. The complaint procedures are also published on our website: Contact us. While all reasonable care has been taken to ensure that the information in this business guide is accurate, no liability is accepted by Bank of Scotland for any loss or damage caused to any person relying on any statement or omission in this business guide. This business guide is provided for information only and should not be relied on as offering advice for any set of circumstances and specific advice should always be sought in each instance. When using these services your agreement will be with the relevant third party and their terms and conditions will apply. Bank of Scotland shall not be responsible or liable to you for any failure by the third party to provide these services or in relation to use by the third party of any confidential information supplied to them by you. Please contact your business team or branch if you d like this in Braille, large print or on audio tape. We accept calls made through RNID Typetalk. Calls may be monitored or recorded in case we need to check we have carried out your instructions correctly and to help improve our quality of service. Bank of Scotland Business is a trading name of Bank of Scotland plc and serves customers with an annual turnover of up to 15m. Bank of Scotland plc. Registered in Scotland No. SC Registered Office: The Mound, Edinburgh EH1 1YZ. Bank of Scotland plc are authorised and regulated by the Financial Services Authority under numbers Licensed under the Consumer Credit Act 1974 under registration number Both companies are members of the Financial Services Compensation Scheme and the Financial Ombudsman Service. (Please note that due to the schemes' eligibility criteria not all Bank of Scotland customers will be covered by these schemes.)

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