In 2018, over 115,000 individuals were declared insolvent due to unmanageable debt, an increase of over 16% from the year before, and the highest figure for 7 years.

Insolvency describes a situation when a company or individual can’t pay what they owe on time, or when the value of their assets is less than the money they owe. In such scenarios, formal legal proceedings begin if a viable solution is not put in place.

A record number of Individual Voluntary Arrangements (IVAs) triggered the spike in 2018, increasing 20% from 2017. An IVA is a legally binding agreement between the debtor and the creditor, which enables those in debt to restructure their affairs, while retaining an element of control, and relieving the pressures that are faced when dealing with debt.

Recognising the warning signs

Financial pressures present themselves in many ways, and early action is the key to avoiding and navigating financial difficulties.

Dean Nelson, Head of Business Recovery & Insolvency at Smith Cooper comments “For individuals’ financial difficulties may appear in the form of late payments, insufficient funds to meet payments or high cost loans. Having problems with debt can be a stressful time, and one which most of us try to avoid. However, if you put these issues off you may end up losing out financially and will most likely end up in a worse position.”

Dean continues “Equally, for business owners, the cost of business can rise sharply and unexpectedly, and coupled with an inconsistent stream of cash, this can make it tough to manage liquidity. It can also make it difficult to distinguish between a temporary dip and long-term decline.”

“Financial struggles can appear in many ways – cash flow issues, management resignations, sudden sale of assets or high levels of staff turnover for example. Getting the right advice at the right time can be crucial to yours or your businesses financial future, and it is important to seek the advice of Insolvency specialists who can utilise their wealth of skills and specialisms to implement solutions before it’s too late.”

The Business Recovery and Insolvency division at Smith Cooper try and avoid formal insolvency at all costs, by conducting rigorous and comprehensive reviews of your organisation, recognising distress signs early in the decline curve. They assess ways in which to prevent any further damage to the business, initiating methods to try and restore liquidity, add value and ultimately rescue the business in whole or part, should it reach that stage.