What is insolvency?

Definition of insolvency

In the UK, the term ‘insolvency’ describes both the situation an insolvent business is in and the legal procedures for dealing with this situation.

When is a business insolvent?

A business is insolvent when it can’t pay its debts. This could mean either that:

• it can’t pay bills when they become due (sometimes known as cash-flow insolvency) 
• it has more liabilities than assets on its balance sheet (sometimes called balance-sheet insolvency)

A business that is insolvent may be in danger of being closed down, although company directors and partners in a Limited Liability Partnership may be able to take actions that allow the business to continue trading. HMRC provides more information about what options are available on its website.

If your business has financial problems, you should speak to your accountant before taking any action.