Jurisdiction(s):
United Kingdom

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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...

IR 2016 r22.4 pre‑CVL notice for s216; insolvent company meaning

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Published by a LexisNexis Restructuring & Insolvency expert

Q&As

For the purposes of this Q&A

We proceed on the basis that the director plans to take over all, or virtually all, of the business of company 1 when company 1 enters a creditors’ Voluntary liquidation (CVL). Under section 216 of the Insolvency Act 1986 (IA 1986), once a company goes into liquidation, anyone who was a director or shadow director of that company in the 12 months before liquidation is, for five years from the liquidation date, prohibited from acting as a director of a company with the same or a similar name to the company that has gone into liquidation (a prohibited name), or from otherwise taking part in the formation or management of a company with the same or a similar name. A person who breaches IA 1986, s 216 may face a fine, imprisonment, or both. There are exceptions to these restrictions in IA 1986, s 216. A director of a company in liquidation can act as a director of a company that uses a prohibited name if they obtain the leave of...

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Caroline Clark

Caroline Clark's insolvency career began over 30 years ago and includes senior responsibility for a portfolio of cases as well as regulatory experience working for the Joint Insolvency Monitoring Unit and national responsibility for compliance and technical matters working for major UK practices. Caroline is now a director of RMCSC, giving high quality insolvency compliance and management advice. As well as being a qualified insolvency practitioner Caroline has an MBA. This, together with experience outside the insolvency profession means that Caroline is qualified to advise about strategic and operational management as well as insolvency. Caroline is also a member of Mensa. Caroline has experience in most areas of personal and corporate insolvency but areas of particular interest include:- Compliance with statute and the principles of best practice including SIPs Strategy, systems and policies Risk...

Web page updated on 11/06/2026

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