Can I get business finance if my company is insolvent?

How to fund an insolvent business

If your company is insolvent, it’s vital to stop trading straight away and obtain assistance from a licensed insolvency practitioner. The insolvency practitioner’s role at this point is to assess your company’s financial situation so that they can provide guidance on whether additional finance is appropriate.

In some cases, additional funding may be suitable but without this professional intervention and support you risk accusations of wrongful trading if you apply for funding. This is because your duties as a director change in insolvency and you have to prioritise creditors rather than the business.

The risk of obtaining additional finance in insolvency

If you attempt to secure additional finance without seeking specialist help you could be seen as deliberately placing your creditors at greater risk of financial loss and, therefore, become liable for some or all of the company’s debts.

Although being able to obtain additional finance for your insolvent company isn’t guaranteed, if it’s deemed appropriate by the insolvency practitioner, it could help you to navigate your business away from permanent closure.

So what forms of funding might be the most beneficial to companies in insolvency?

Which types of additional finance might be available to an insolvent company?

The UK operates a robust insolvency regime that offers struggling companies the opportunity to be rescued, if appropriate. It’s commonly the case that relentless creditor pressure forces a business into liquidation so you need to act quickly to avoid closure.

Asset finance and invoice finance are just two types of funding that can help a company in severe decline.

Asset finance

Asset-based finance may be an option available to the insolvency practitioner and involves using existing assets to generate funding. If your insolvent company is asset-rich but cash-poor, selling the assets or otherwise leveraging their value could prove to be beneficial for its long-term outlook.

Invoice finance

Invoice finance is another form of additional funding that might be appropriate once the company has been assessed by an insolvency practitioner. This releases the value tied up in your sales ledger, which typically represents a significant business asset.  

Alternatives to new funding channels

If your company is insolvent and you are looking to take out funding in order to clear your unpaid tax arrears, you may be able to enter into a repayment plan with HMRC as an alternative.

This is achieved through the Time to Pay (TTP) scheme, and it works by providing between three and six months of extra time to pay on tax arrears. This timescale can sometimes be extended to 12 or 18 months in certain circumstances.

Your insolvency practitioner will be able to confirm whether the company is officially cash insolvent or balance sheet insolvent, and subsequently, whether a Time to Pay arrangement might be appropriate as an alternative to taking out finance to clear your debts.

Seeking professional assistance in insolvency

UK Business Finance are independent commercial finance brokers providing the trustworthy advice you need when your company is insolvent. We’ll point you towards the best deals if obtaining additional finance is appropriate for you - please get in touch with one of our team to find out more.