How to tell if your company is insolvent

Understanding whether your company is insolvent is critical for directors, as duties change once insolvency is suspected. Two primary tests are commonly used.

Cash flow test

A company may be insolvent if it cannot pay debts as they fall due, even if assets exceed liabilities overall.

Balance sheet test

If liabilities exceed assets, the company may be balance sheet insolvent regardless of short-term liquidity.

Common warning signs

• Persistent HMRC arrears
• Supplier pressure
• Declining cash flow
• Director funding reliance