Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Insolvency definition

What does Insolvency mean? In practice, insolvency describes a financial state where a debtor cannot meet liabilities when due, triggering remedies such as administration, liquidation or bankruptcy and informing directors’ duties and avoidance claims. For companies in England & Wales, Scotland and Northern Ireland, the Insolvency Act 1986, s 123 sets two alternative tests: - Cash‑flow insolvency: an inability to pay debts as they fall due. The inquiry is practical and forward‑looking, not confined to today’s bills (Re Patrick & Lyon Ltd [1933] Ch 786; BNY Corporate Trustee Services Ltd v Eurosail [2013] UKSC 28). - Balance‑sheet insolvency: liabilities (including contingent and prospective liabilities) exceed assets on...

Falsifying Company Books in Insolvency: Offence Elements, Definitions, Investigation, Prosecution and Sentencing under the Insolvency Act 1986 (England, Wales and Scotland)

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Practice notes

under the Insolvency Act 1986

A company is regarded as insolvent if it cannot settle its debts as they fall due, if the total of its Liabilities exceeds the value of its assets, or if both tests apply. When insolvency arises, the Insolvency Service will place the company into winding up under a Statutory scheme that fairly administers the company’s assets and the creditors’ claims.

Within the Insolvency Act 1986 (IA 1986) are provisions that establish criminal offences for unfit conduct by directors once a company has become insolvent. Where the company is in the course of being wound up, an officer or contributory commits an offence if they destroy or falsify any company books or securities, or if they make, or are privy to the making of, any false or fraudulent entry in any register, book of account, or document belonging to the company, with the intention of defrauding or deceiving any person. IA 1986, s 209 specifies the constituent elements of the offence, the applicable burden of proof, and the penalties that may follow. The purpose of this provision is to protect debtors and the Official Receiver from being misled about the assets of a company in liquidation...

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Web page updated on 21/05/2026

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