The Consequences to Insolvency

insolventInsolvency is a topic that should never be taken lightly. It is pretty major and can lead to the demise of one’s beloved company and in some cases even put one personally liable to creditors. But apart from the obvious, what other consequences does this bomb have? Better read on to find out.

There lies a possibility for a WUP. – A WUP which stands for a winding up petition is a severe method by which creditors force an insolvent company to liquidate. The court shall come into the picture and will impose a compulsory liquidation if the grounds presented by creditors are proven true.

Credit score shall be tarnished. – When the insolvency eventually leads to a bankruptcy or winding up procedure, expect credit standing to be stained. Nothing gets unrecorded and this can mean many things the most hefty of which would have to be finding it hard to apply for future credit or loans.

Assets may need to be sold. – Prior to a liquidation procedure, the entity may already be forced to sell some of its assets to cover for the payment of liabilities. The first to go are often the big ticket items like machinery and equipment as well as inventories.

Employee benefits will be cut. – When financial dilemmas arise, one of the first costs to go will be that pertaining to employee benefits. Of course, this is bad news for both employer and employees.

Personal claims are possible. – If any personal guarantees have been given, owners and directors are liable to pay up to the extent of their personal assets.

Director penalties are to be had. – The insolvency practitioner shall examine each and every director’s conduct to see if any negligence or dishonesty has occurred. If any, the director shall be held personally accountable as well and may even face legal consequences.

Brand will be marred. – Insolvency does not leave one unscathed. It can leave a scar on the business and its brands to the point that customers, investors, business partners and suppliers will withdraw their support.

Insolvency is not yet the end although it sure is close to it. Experts therefore suggests that companies must act really fast and smart in order to stop sinking deeper. It may take a lot of effort to rise back up and keep from drowning but believe us when we say this; with the right methods insolvency can be solved. Many have and so can you.

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