Most directors do not wake up one morning and discover their company is insolvent. The signs build up over months, sometimes years. Bills get paid a few days late, then a few weeks late. A VAT return gets missed. A supplier asks for cash up front. The bank account dips into the overdraft and stays there.
Recognising the pattern early is what gives you options. The same situation that has five clear routes through it in February has two by June and one by October. This article runs through seven of the most common warning signs that a limited company is insolvent or close to it, and what each one means for you as the director.
Table of Contents
- Persistent late payment to suppliers
- HMRC arrears that are growing rather than shrinking
- County Court Judgments registered against the company
- A bank account that lives in the overdraft
- Statutory demands or threatening letters from creditors
- The directors are funding the company personally
- You are losing sleep over the company finances
- What to do if some of these apply to you
- Speak to Lee directly
Persistent late payment to suppliers
Trade creditors are usually the first to feel cash flow pressure. If your accounts payable list shows the same suppliers being rolled forward week after week, with payment runs being prioritised by who is shouting loudest rather than who is contractually due, that is a signal.
In legal terms, this connects to the cash flow test for insolvency. If the company cannot pay its debts as they fall due, it is cash flow insolvent. One or two late payments is not the test. A sustained pattern, where the question every Friday is which suppliers to delay this week, is.
HMRC arrears that are growing rather than shrinking
VAT, PAYE, and Corporation Tax arrears tell you something different to trade debt. HMRC is patient up to a point, and then it is not. The pattern that should worry you is not the first late return. It is the second one filed without payment, followed by a third where the return itself slips.
HMRC issues more winding-up petitions than any other creditor in the UK. The reason most directors are surprised by their petition is that they assumed the silence between letters meant the matter had gone quiet. It rarely has. If your HMRC balance is going up rather than down, even slowly, that trajectory matters more than the absolute number.
County Court Judgments registered against the company
A CCJ on the company’s record means a creditor took court action and the company either lost or did not respond. From an outside view, your company now has a public-record signal that it does not pay its debts.
The immediate consequences are credit-related: trade insurance withdrawn, credit lines reduced, suppliers tightening terms. The longer-term consequence is that the CCJ stays on the public register for six years unless settled within a month. A single CCJ can usually be managed. A second one is a pattern, and creditors notice patterns.
A bank account that lives in the overdraft
The overdraft is a useful short-term cash flow tool. The problem is when it stops being short-term. If the account has not been in credit for months, if every salary run requires a phone call to the bank, or if the overdraft limit has been quietly extended more than once, the company has moved from using the facility to depending on it.
Banks notice this too. Overdraft reviews are where many companies discover that the facility is being withdrawn or capped. That is often the trigger for a more formal conversation about company debt options, because the cash flow runway just shortened.
Statutory demands or threatening letters from creditors
A statutory demand is a formal step a creditor takes before petitioning to wind up the company. It demands payment of a debt over £750 within 21 days. If you have received one, the petition is the next legal move available to the creditor.
Some directors put statutory demands aside on the assumption that the creditor is bluffing. Some are. Most are not. The 21-day clock is real, and the petition that can follow it is a court process, not a negotiating tactic.
The directors are funding the company personally
If the company can only meet payroll because a director has put money in from a personal account, or because a credit card in the director’s name is paying business suppliers, the company is in a different position to the one its balance sheet shows.
Two issues sit underneath this. First, the company is balance sheet insolvent if its liabilities exceed its assets, and director loans are still liabilities to the director. Second, continuing to trade while propping the business up personally can expose the director to wrongful trading risk if the company later enters insolvent liquidation. The protection of limited liability does real work, but it does not cover continued trading past the point a reasonable director would have stopped.
You are losing sleep over the company finances
This is the least technical sign and often the most accurate one. Directors generally know before their accountant tells them. The shift from “this is a difficult quarter” to “I am not sure how we get out of this” usually happens privately first.
If you are running cash flow forecasts at 2am, if conversations with your partner now start with company finances, if you are avoiding looking at the bank balance: the company’s position is probably worse than the figures alone suggest. The figures are a lagging indicator. The director’s gut is usually six months ahead.
What to do if some of these apply to you
If one of these signs is present, it is worth a calm review of where the company stands. If three or more are present, that is the point at which most directors benefit from an external view, before the options narrow further.
A licensed insolvency practitioner is not only there for the wind-down. A meaningful part of the work is helping directors who still have time on the clock. Sometimes the right answer is a structured repayment plan with HMRC. Sometimes it is a Creditors’ Voluntary Liquidation before the situation gets worse. Sometimes it is a different route entirely. The honest answer depends on what the figures and the timeline actually look like.
You can read more about our practice and how Lee approaches these conversations. The first call is free, confidential, and does not commit you to anything afterwards.
Speak to Lee directly
Every situation is different. A Clarity Consultation is a free, confidential conversation with Lee about where your company stands and what your realistic options are. No pressure, no obligation, no fee.
We help directors across Stourbridge and Black Country make calm, informed decisions, often when things feel anything but calm.
