Harper James advises directors of UK start-ups, scale-ups and established companies on insolvency, restructuring and the duties that apply under the laws of England and Wales. Early planning gives the board more choices and creates a clearer record of the decisions taken.
Directors should maintain a rolling 13-week cash-flow forecast, review aged debts, monitor tax liabilities, test banking covenants and track payroll, rent and key supplier payments. A falling cash balance is only one warning sign. Repeated payment extensions, creditor threats, missed VAT or PAYE payments, and reliance on new borrowing to settle old debts all require board attention.
Once insolvency is imminent, directors must give increasing weight to creditors' interests. The board should record its financial information, the advice received, the options considered and the reasons for each decision. A practical guide to restructuring and insolvency planning provides further context on the formal and informal routes available.
A solvent turnaround plan can involve cost reductions, new investment, asset finance, revised payment terms or an agreed standstill with creditors. Where pressure is more serious, directors should assess a company voluntary arrangement, administration, a restructuring plan or liquidation. The Part A1 moratorium can provide a temporary breathing space while a restructuring adviser works on a rescue proposal, although it does not remove every creditor remedy and directors retain their management responsibilities.
The board should also check for personal exposure. Personal guarantees, unlawful dividends, transactions at an undervalue, preferences, unpaid employment liabilities and inaccurate financial statements all require careful review. Maintaining complete accounting records and separating company funds from personal funds are basic but important protections. Directors should not transfer assets, repay connected parties selectively or continue trading simply to delay an inevitable failure.
A sensible insolvency plan names the people responsible for cash reporting, creditor communications, payroll, lender discussions and board minutes. It sets thresholds for taking further advice, such as a missed tax payment, a failed funding round or a formal demand from a creditor. Directors should obtain a clear assessment of the company's financial position, the likely outcome for creditors and the cost, timing and control implications of each restructuring route before committing to a transaction. Acting early preserves options, while delay increases the risk of personal claims and director disqualification.