Business Law Made Easy: What is Property Insolvency?

We often hear about businesses becoming insolvent, a situation more commonly referred to as property insolvency.

But what exactly does it mean?

What pushes a business into insolvency?

What are the solutions at hand for a business owner facing property insolvency?

In this post, we look to answer all these questions and more.

This is Business Law Made Easy, and today our subject of focus is:

Property insolvency!

What is Property Insolvency?

Property insolvency is a situation of financial crisis a business finds itself in, where it is no longer generating enough cash flow to pay for its liabilities.

We say that the business has become insolvent.

Since a business is the property of its owner, it only makes sense to refer the situation as property insolvency rather than saying “the business has become insolvent” – a diction far too over-streched to be used in day-to-day conversations.

What Causes Property Insolvency?

A number of factors may be involved into pushing a business towards insolvency. The most common ones are:

• Volatile market conditions
• A significant increase in business overheads but no change in revenue
• A business partner or employee committing a fraud resulting in heavy financial loss for business
• Poor management

Property Insolvency Warning Signs

As far as the warning signs are concerned, business owners should keep an eye out for:

• Increasing amount of bad debts
• Unpaid payments to HM Revenue and Customs
• An increasing need to finance business operations from own pocket
• Non-withdrawal of personal salary or dividends for months

A Business Becomes Insolvent – What’s Next?

With creditors sending in red-tape letters every day, threatening to take legal action, it’s unhealthy for a business to let the situation worsen further. This is where business owners can intervene and seek services of a licensed insolvency practitioner. Using their experience, an insolvency practitioner can suggest appropriate solutions and help businesses bail out of insolvency.

Depending on the specificities of a situation, an insolvency practitioner may propose any of the following solutions to a business owner:

1. Enactment of a company voluntary agreement
2. Pursue administration

• Liquidating the business and fairly distributing the business’s assets among the creditors

In short, the graver the situation, the more aggressive would be the effective solution to get things back on track. Therefore, it’s advisable to seek professional help in early stages of insolvency.

Do you have any other questions about property insolvency?

Feel free to reach out.

Further reading: All You Need to Know About Property Insolvency