What can you do if your company is in debt?

Debt isn’t necessarily harmful for a business. When used wisely, it can assist a company in stabilising its cash flow, investing in machinery, stock, and assets, and speeding up its long-term growth or expansion goals.

When debt becomes challenging to handle, issues can swiftly accumulate for the company.


How will you deal with your limited company’s debts? 

Directors need to recognise the indicators of problematic debt and be ready to act if any of these signs are identified:

  • Facing difficulty in obtaining additional credit
  • Experiencing rising pressure from creditors
  • Dealing with threats of legal action, including Statutory Demands and Winding-Up Petitions.
  • Struggling to meet timely payments to creditors
  • Lagging behind on HMRC tax obligations. 

When the debt issues of a company are like become threatened for long-term viability, urgent measures must be taken to stabilise its financial position. Ignoring and allowing the situation to persist is likely to worsen the company’s standing, potentially leading to insolvency.


What do we mean by company insolvency?

A company is considered insolvent when it cannot meet its financial obligations as they become due. If your business faces stretched cash flow and struggle to pay creditors, bills, and other overheads in full and on time, take it as a serious warning sign that your company might soon be, or may already be, cash flow insolvent.

Insolvency can also be assessed by comparing the value of a company’s assets with its outstanding debts. If the company’s debts exceed its assets, it is classified as balance sheet insolvent.

If your company is insolvent, you have specific legal obligations that must be followed; neglecting them could result in a breach of your fiduciary duties. 

Upon confirming your company’s insolvency, it is crucial to prioritise the interests of creditors over those of yourself, fellow directors, and shareholders.

This implies refraining from actions that could worsen their position or expose them to additional financial losses.

In numerous instances, this entails the immediate cessation of trading for the company. Nevertheless, there are situations where continuing trade may be advantageous, provided it is established that it will enhance overall returns for creditors. 

This determination can only be made by a licensed insolvency practitioner after exhaustively exploring all options for rescue, recovery, and closure.


What will be the effective steps if my business is in debt?

The positive news is that several options exist for limited companies grappling with overwhelming and continually mounting debt.

 Depending on the financial and operational status of the company, along with the prospective viability of the business, potential solutions may involve:

  • Initiating the company’s administration to facilitate a restructuring process.
  • Engaging in formal negotiations with creditors through a legally binding Company Voluntary Arrangement (CVA)
  • Or considering avenues for a systematic closure of the company through liquidation if rescue is unattainable or undesirable.

Do I need to repay my business debts on my own?

When a business is registered as a limited company, its directors benefit from a degree of protection through limited liability. A limited company is regarded as a distinct legal entity and, consequently, accountable for its debts.

If a limited company becomes insolvent, its directors will not be personally held responsible for settling the outstanding debts, as the company, with limited liability, is accountable for its financial obligations.

The exception to this occurs when a director has signed a personal guarantee to support any of the company’s borrowings. In such cases, the personal guarantee becomes enforceable when the company enters formal insolvency proceedings and the responsibility for the related debt shifts to the director who provided the guarantee.


How Vanguard Insolvency can help with your company’s debts?

If your business is grappling with its debts, the team of licensed insolvency practitioners at Vanguard Insolvency is available to assist. 

You can schedule a free, no-obligation consultation with one of our insolvency experts, who will carefully assess your company’s debt situation and discuss the available options for you and your business. 

Reach out to our team today at 0121 769 1915. 




Get more help with Vanguard Insolvency 

If your company is facing financial challenges, Vanguard Insolvency provides a team of insolvency experts to guide you through your current situation. 

We can discuss various business rescue and recovery options to steer your business back on course. Alternatively, we can explore the optimal approach for closing your company if you decide to part ways for good.

Call us today to schedule a complimentary, no-obligation consultation with a licensed insolvency practitioner.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.