Insolvency can be an extremely challenging situation for an individual, both financially and emotionally.
While there are steps one can take to manage debt and recover from insolvency such as an individual voluntary arrangement or declaring bankruptcy, personal insolvency solutions such as these are a matter of public record.
When declared insolvent, a person’s details are added to the Insolvency Register. Note, in Scotland one is added to the Register of Insolvencies while in Northern Ireland you have the Individual Voluntary Arrangement Register.
Although these databases are accessible to all, including credit reference agencies, an individual does not remain on the insolvency register indefinitely.
WHAT IS INSOLVENCY?
Insolvency is the state that a company or individual enters when they’re not able to pay their debts. When a business becomes insolvent, this means that its debts (liabilities) are greater than the value of its assets and income. In effect, they are not able to pay back the money owed, either currently or in the future.
It’s possible for a company to be insolvent even if their assets outweigh their liabilities if the assets aren’t easily converted to cash. When a person becomes insolvent, this is generally known as ‘bankruptcy’ and falls under an entirely different set of rules and necessary procedures.
HOW A COMPANY BECOMES INSOLVENT
There are many ways that a company can find itself in the unfortunate situation of insolvency. However, there are a few common causes:
- The business hasn’t adjusted to keep up with the current market
- Overly ambitious growth plans that deplete the company’s financial resources
- Fraud
- Improper or unqualified management
- Lack of thorough bookkeeping
As a sole trader or small business owner, almost any of these can lead to insolvency. There are two tests that will generally reveal whether a company has become (or is at risk of becoming) insolvent.
Balance sheet test
Under the balance sheet test, a thorough overview of the company’s balance sheet should reveal whether the liabilities are larger than the assets either now or in the future, taking into account both expected and unexpected expenses.
Cash flow test
This test involves examining the company’s budget to determine whether there is enough cash or convertible assets to pay off the current and upcoming debts.
When a business fails one or both of these tests, it’s likely already experiencing or heading towards insolvency and should follow the necessary procedure.
WHAT IS THE INSOLVENCY REGISTER?
The Insolvency Register is a record that can be accessed online detailing all the individuals who are insolvent in England and Wales. As well as providing names, there are a number of additional details provided on the Insolvency Register. This level of detail is necessary to avoid potentially damaging cases of mistaken identity.
Personal information is listed: gender, occupation, date of birth and current or most recent address. Details of the insolvency case are included. The type of insolvency is listed as well as when and where it was processed (at which court).
In addition, you’ll find details on the insolvency service and insolvency practitioner managing the process.
HOW LONG DO YOU STAY ON THE INSOLVENCY REGISTER?
The answer to this is it varies from person to person.
As mentioned above, there are various solutions when it comes to recovering from insolvency.
These may take different lengths of time – indeed, the effectiveness of these solutions and the willingness of all involved to carry out actions in a prompt manner will impact the length of time recovery takes.
Naturally, the scale of the debt is a factor to consider, and if an individual has the ability to pay it off within a certain, faster, time frame, for example by leveraging a secondary source of income.
Once debts have been repaid, you are “discharged” from the insolvency register. After this, your details remain on the register for an additional three months.
Be aware, if you break the agreed terms of your debt solution, you may be subject to a restriction order which can result in your details remaining on the Insolvency Register for longer.
THE IMPORTANCE OF SPEAKING TO A PROFESSIONAL
Given the multiple insolvency solutions available, and the need to act in a timely manner when it comes to debt, we strongly recommend taking advice from a licensed insolvency practitioner.
Not only can this be a reassuring process, but you will also be able to find out more about the nature of the Insolvency Register and precisely which details will be added depending on your insolvency solution.
THE INSOLVENCY REGISTER AND CREDIT SCORES
It’s common to worry about being placed on the Insolvency Register and the impact this will have on future credit scores.
While it is true that details of your insolvency will remain on your credit report for six years, this doesn’t change the fact that pursuing an insolvency solution is often the best, and most responsible, course of action at that moment in time.
How Madison Legal Can Assist
Madison Legal insolvency barristers can advise and represent creditors or administrators from other jurisdictions in relation to potential claims and other interim relief, such an injunctive relief, against creditors in this jurisdiction and/or where there are assets in England & Wales Please do not hesitate to contact us for advice, send us an e-mail. Alternatively, contact us via LinkedIn.
