In case you are struggling or facing becoming insolvent, it is a must for you to get the right information to assist you and guide you through the upcoming procedures and steps. It is indeed a scary thought, but burying your head in the sand and considering the issues to resolve themselves or just go away is no way to run a business.
When an organization becomes insolvent, many issues present themselves. The law is there to address many of them, but not all. For the remainders, the solution might be found in non-insolvency laws. This blog will cover everything you need to know about an Insolvency Lawyer and the law itself.
What is insolvency?
Insolvency occurs when individuals or businesses can’t pay their debts on time. Before facing formal insolvency proceedings, they often try informal agreements with creditors, like arranging different payment plans. Insolvency often arises from poor management of cash, a decrease in cash flow, or an increase in expense.
How does the insolvency law help?
Ask any reputable insolvency lawyer, and they will explain the following ways in which insolvency law can be beneficial:
- A collective process of insolvency resolution
- Regulations to monitor the opportunistic behavior of managers and shareholders in the vicinity of insolvency.
How does insolvency work?
Insolvency is a state of financial distress that happens when an organization or individual is unable to pay their bills. It can lead to insolvency proceedings, in which legal action will be taken against the insolvent individual or entity, and the assets may be liquidated to pay off the outstanding debts. The business owners can contact creditors directly and restructure debts into more manageable installments. Creditors are generally amenable to this methodology since they wish to be repaid and avoid losses, even if the repayment is delayed.
In case a business owner plans on restructuring the organization’s debt, they assemble a realistic plan showcasing how they can decrease company overhead and continue to carry out business operations. The owner comes up with a proposal detailing how the debt can be restructured utilizing cost reductions or other plans for support. The proposal showcased to creditors how the organization can produce sufficient cash flow for profitable operations while paying its debts.
Generally, a forgiven debt may be considered as income by the Internal Revenue Service (“IRS”, the federal tax agency of the United States, responsible for the collection of taxes and the enforcement of tax laws). However, if a taxpayer is deemed insolvent, any forgiven debts are excluded from their income, eliminating the requirement to lay taxes in those amounts.
Personal Insolvency
Now that we grasp the basics of insolvency law and its workings, every reputable insolvency lawyer recommends understanding personal insolvency.
- If you’re self-employed or in a partnership and facing insolvency, seeking expert guidance can help protect your business and assets. A general example of anyone the professionals can assist is self-employed people running their personal businesses who have developed debts with banks, Credit cards, trade suppliers, and HM Revenue and Customs (“HMRC”, british tax authority responsible for the collection of taxes and duties, as well as the enforcement of tax laws in the United Kingdom) to the extent that they will not repay these debts without reaching some kind of arrangements with these creditors.
In case you are in this category and have a venture or assets that you wish to safeguard, then please contact the experts at Law Firm Briest, as we can help you by either formally collaborating with a licensed insolvency practitioner to safeguard you or informally implementing a deal with the creditors for you where appropriate. Ultimately, though, if you think you are better off being advised to make yourself bankrupt, then we may assist you with this also, ensuring that you totally comply with the law while at the same time safeguarding you.
- Partnership insolvency is a little different from personal in that the partnership itself is a distinctly legal entity. These are way less common than personal insolvency, and general examples are professional companies such as solicitors or accountants. If you are in an insolvent partnership, the experts can act with a licensed insolvency practitioner to safeguard you and the business partners and assist with a restructuring, which, with the consent of creditors, will enable their recovery.
Whether it is an organization or its employees, insolvency is a rough test for everyone who is involved. At the same time, these proceedings also provide the chance for a fresh start. Unlike liquidation, which generally ends with the total dissolution of the organization, it generally aims to restructure the organization. The primary purpose of this measure is to settle the outstanding payments and ensure the continued existence of the organization.
Wrapping Up
So, now that you’ve read this far, you understand the importance of having a trusted insolvency lawyer for your business.
Disclaimer: “The information in this blog provides general information and does not constitute legal advice. Always connect with a qualified and professional attorney for specific legal instructions and advice pertaining to your case.”
