Are big companies immune to insolvency?

Insolvency

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We sometimes think of insolvency as something that happens only to small businesses, when they’ve been struggling to build up their customer base or have been hit hard by a relatively small change in circumstances.

It’s easy to understand why big companies can seem immune. After all, don’t they more easily absorb the changes in customer numbers that would cause a small business to crumble?

With BHS becoming insolvent in early 2016, after once being a household name, and with a generation of children now growing up having never seen a Woolworths store on their high street, it’s certainly worth remembering that insolvency can happen to anyone.

What is insolvency?

Insolvency occurs when a business has run up debts, with no practical way to pay them off.

When a person is insolvent, they’ll likely go through the bankruptcy process. A business will end up going into liquidation, administration or receivership.

Liquidation typically involves immediately closing the business, whilst administration is a process intended to rescue the company if it’s possible. Of course, even if the administration process is successful, what’s left at the end will be very different to what was there before.

So, any company can become insolvent?

Insolvency isn’t limited to the smaller companies. Any business can owe more than it can afford to pay, whether that’s a small business with £1,000 of debt or a larger business with £100,000. The bigger the business, the higher the value of the trading that they’re doing and the more debt they’re likely to be in.

Think of companies like people:

One individual is struggling under the weight of £1,000 of store card debt from clothes shop purchases. If they’re making just £800 per month and need that money for their daily living costs, they might be unable to pay back what they owe.

A second individual is earning £3,000 per month and could easily live on £800 of this. If they had the first person’s debt, they’d be able to pay it off. However, as they have more money they’ve been making significantly larger transactions. They’ve taken out hire purchase agreements for expensive cars, and a mortgage on a six-bedroomed house. They’re just as likely to be struggling with debt as the first person is, having purchased things that the person in our first example would never even have considered.

It’s the same for any business. A small business might have very few costs beyond a bit of office equipment purchased on credit, but might lose one or two customers and be unable to pay its debts. A larger business could be trading in large amounts of stock, with dozens of properties across the country. If sales decrease, their situation is just as dangerous.

Contact The Insolvency Experts

Whether you’re a big business or small, speaking to The Insolvency Experts can help you to formulate a plan of action. Remember that no company is immune, so support is available no matter what level of debt you’re struggling with.

Contact The Insolvency Experts today, for discreet and sensitive service. You can call directly on 0300 303 8284.

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