What Is Insolvency?

Solvency is set out in Section 123 of the Insolvency Act 1986. You are insolvent if your liabilities exceed your assets. This is known as Balance Sheet Insolvency. You are also insolvent if you are unable to pay your debts when they fall due. This is known as Cash Flow insolvency.

If you are either Balance Sheet Insolvent or Cash Flow Insolvent then you are in accordance with Section 123 of the Insolvency Act 1986, insolvent.

If you are insolvent then you might well need to consider if your conduct might give rise to Wrongful Trading which can have serious implications for a Limited liability company Director.

Section 123 of the Insolvency Act 1986 – Am I Therefore Insolvent?

Section 123 of the Insolvency Act 1986 defines solvency as follows:

(1) A company is deemed unable to pay its debts—

(a) if a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company’s registered office, a written demand (in the prescribed form) requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, or

(b) if, in England and Wales, execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part, or

(c) if, in Scotland, the induciae of a charge for payment on an extract decree, or an extract registered bond, or an extract registered protest, have expired without payment being made, or

(d) if, in Northern Ireland, a certificate of unenforceability has been granted in respect of a judgment against the company, or

(e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.

(2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

(3) The money sum for the time being specified in subsection (1)(a) is subject to increase or reduction by order under section 416 in Part XV.

Are you a Director or individual in debt?

If you are a Director of an insolvent company or a bankruptcy, Oliver Elliot can help you address your claim and concerns arising from the insolvency.

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Disclaimer: Am I Insolvent?

This page: Am I Insolvent? is not legal advice and should not be relied upon as such. This article Am I Insolvent? is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.