Company insolvency problems

• Key contacts
• Case studies
• FWJ takeaway

When a company faces insolvency, both directors and shareholders must act carefully to protect their interests. Missteps during this period can lead to personal claims, regulatory investigations and the permanent loss of value.

At Francis Wilks & Jones, we act for company directors, shareholders and investors dealing with financial distress. Whether your goal is to rescue the business, defend against allegations or achieve an orderly closure, our team provides clear, commercial advice at every stage of the insolvency process.

What happens when a company becomes insolvent?

A company is insolvent when it can no longer pay its debts as they fall due or when its liabilities exceed its assets. These two legal tests — known as the cash flow test and the balance sheet test — are set out in the Insolvency Act 1986.

Once a company is insolvent or approaching insolvency, the focus of directors’ duties shifts. Instead of acting primarily in the interests of shareholders, directors must prioritise the interests of creditors.

Insolvency can trigger conflict between shareholders, directors and lenders, particularly where blame is alleged or where business assets may still hold value. FWJ’s insolvency lawyers help clients understand their duties, manage risk and prepare the company for potential restructuring or formal insolvency.

What are directors’ duties and risks during insolvency?

Directors are legally required to act in good faith and in the company’s best interests. Under sections 171–177 of the Companies Act 2006, this includes acting within powers, promoting company success, and exercising reasonable care, skill and diligence.

When insolvency becomes likely, directors must also comply with the Insolvency Act 1986, which introduces potential liabilities such as:

• Wrongful trading – under section 214, directors may be personally liable if they continue trading when they knew or should have known there was no reasonable prospect of avoiding insolvency.
• Misfeasance – under section 212, directors can be required to repay, restore or account for company assets wrongly used.
• Preferences and transactions at undervalue – under sections 239–240, the court may reverse transactions made to benefit certain creditors or associates before insolvency.

FWJ regularly defends directors accused of these breaches. We also negotiate with insolvency practitioners to reach settlements that minimise exposure and avoid formal proceedings where possible.

What can shareholders do when their company is insolvent?

Insolvency fundamentally changes the role and influence of shareholders. Once administrators or liquidators are appointed, shareholders’ powers are limited — but they still have important rights to protect.

Shareholders may:

• receive updates and reports on the insolvency process;
• attend creditors’ meetings where appropriate;
• challenge director conduct or unfairly prejudicial decisions;
• bring claims to recover value or defend against allegations of misconduct.

Minority shareholders, in particular, can be vulnerable during insolvency where control passes to external insolvency practitioners. FWJ acts for shareholders seeking to preserve value, ensure fair treatment and address director mismanagement that may have contributed to the company’s failure.

What insolvency procedures are available to save or close the business?

There are several legal procedures available when a company becomes insolvent. Each has distinct consequences for directors, shareholders and creditors.

1. Administration – an insolvency practitioner is appointed to take control of the company and attempt to rescue it or achieve a better outcome for creditors.
2. Company Voluntary Arrangement (CVA) – a formal agreement with creditors to repay debts over time, allowing the company to continue trading.
3. Liquidation – where the company’s assets are sold and the business is closed. This may be voluntary (by shareholders or creditors) or compulsory (by court order).
4. Receivership – where a secured lender appoints a receiver to realise assets covered by a charge.

At FWJ, we work closely with insolvency practitioners, accountants and lenders to identify the most effective route for each client. Our goal is to preserve value and avoid unnecessary damage to reputation or future trading prospects.

How can FWJ help directors and shareholders in insolvency situations?

Our team has decades of experience advising on all aspects of company insolvency and director defence. We act for both individuals and companies — from early warning stages to formal proceedings and post-liquidation claims.

Our support includes:

• advising on warning signs of insolvency and directors’ duties;
• defending wrongful trading and misfeasance claims;
• representing shareholders in unfair prejudice or valuation disputes;
• negotiating settlements with insolvency practitioners and creditors;
• advising on company rescues, buy-outs and restarts;
• securing validation orders or freezing order defences where necessary.

We are known for our practical, strategic approach — aiming to resolve matters efficiently and protect long-term interests.

Our shareholder disputes team at FWJ includes

Andrew Carter (Partner)

Andrew Carter is a commercial litigation partner with extensive experience resolving shareholder and partnership disputes. He acts for business owners, directors and investors in complex conflicts over control and value. Clients trust his calm, strategic approach and focus on achieving practical, commercial outcomes.

Gemma Newing (Senior Associate)

Gemma Newing is a commercial litigation solicitor with strong experience in contractual and company disputes. She acts for businesses and shareholders in complex claims requiring clear strategy and efficient resolution. Clients value her focus, responsiveness and commitment to achieving practical results.

Anna Beetson (Solicitor)

Anna Beetson advises SMEs, directors and shareholders on commercial and company disputes, with a focus on efficient and practical resolution. She combines strong technical knowledge with a clear, client-focused approach. Her work covers contractual claims, shareholder disagreements and boardroom issues.

Athena Kam (Paralegal; Unregistered Barrister)

Athena Kam supports clients across commercial litigation, director disqualification and debt recovery matters. Drawing on her background as an unregistered barrister, she brings analytical precision and attention to detail to every case. She assists in preparing evidence, drafting submissions and managing proceedings efficiently.

Contact us today to schedule a free consultation if you are concerned about any company insolvency issues and how to protect your interests as a shareholder. We can help you today.

I have found FWJ to be perceptive, to the point and realistic. They have been able to assimilate and forcefully defend a very aggressive claim with very limited historic information.

A client we advised on a complicated property and partnership dispute