Corporate insolvency


Corporate insolvency is a serious situation where a company cannot meet its outstanding debt obligations and continue normal operations. Legal insolvency is declared when liabilities exceed assets. This may result from excessive debt levels, poor financial management, or external economic factors.


Insolvency leads to loss of control as assets get liquidated to repay creditors. Business activity halts, stakeholders suffer losses, and reputation is damaged. Companies perceived as insolvent also struggle to access financing.


However, before formal liquidation, rescue may still be possible through debt renegotiation, new investment, non-core asset sales, cost cutting, or filing for insolvency protection. An experienced lawyer can help determine if restructuring and turnaround is viable.


Where turnaround efforts fail, our lawyers manage orderly liquidation and dissolution processes in accordance with Spanish law. We work to maximize recoveries, minimize disruption, ensure compliance, and protect directors. Engage our expertise.

What is corporate insolvency?

Corporate insolvency refers to a company’s inability to pay outstanding debts and continue operations. It is the state of being bankrupt and unable to satisfy creditors. Insolvency is legally declared when the company’s liabilities exceed its assets, meaning it does not have enough resources to pay all that it owes.


Insolvency occurs when a company takes on excessive debt compared to the cash flow it generates. Poor financial management and planning can lead to unsustainable debt levels. External factors like economic recessions that reduce revenues can also cause insolvency.


Once declared insolvent, control is taken away from owners as the company’s remaining assets are liquidated to generate funds that are paid out to creditors based on priority. With assets being sold off, normal business operations halt. Owners stand to lose their investment in the company. The company’s reputation also suffers in the marketplace.


Insolvency leads to legal action from creditors attempting to recover owed funds. It also damages the company’s ability to access financing in the future. Employees unfortunately also risk losing their jobs. The impacts are far-reaching for all stakeholders.


Seeking legal counsel early from insolvency experts can help preserve options before it reaches the worst case scenario. There may still be paths to restructure and rebuild the business.

Restructuring options for insolvent companies

Before proceeding to formal liquidation, there may still be opportunities to restructure and revive an insolvent company. Restructuring strategies include renegotiating repayment terms and conditions with major creditors to reduce debt servicing burdens.


Obtaining new financing from investors through equity investments or subordinated debt instruments can also provide much needed working capital and improve the debt-equity ratio. This requires presenting a viable turnaround plan to rebuild confidence.


Selling non-core business assets and real estate to generate cash that can repay creditors is another option. This streamlines operations to refocus on profitable core activities. However, care must be taken to ensure key assets are retained.


Implementing cost reduction measures such as downsizing the workforce, eliminating non-essential spending, closing unprofitable business units, and renegotiating supplier contracts can improve the cost structure. Survival may hinge on reaching profitability quickly.


Filing for insolvency protection halts creditor legal action while giving breathing room to negotiate terms and develop a court-approved turnaround plan with input from creditors and advisers. This avoids liquidation but still requires sacrifices.

Liquidation and dissolution processes

If restructuring and turnaround efforts fail, the company will need to enter formal insolvency liquidation. This involves valuing and selling remaining company assets through court supervision to generate funds for creditors.


An insolvency practitioner will be appointed as liquidator to manage communications, address claims, oversee dissolution, and distribute proceeds from asset sales to creditors. Secured creditors get priority.


Legally closing and dissolving the company follows, which terminates all business operations. Any surplus funds are used to pay employees and unsecured creditors on pro rata basis. The company is removed from relevant registers.


Directors may face restrictions and disqualifications. Records must be maintained for prescribed periods. Taxes and reporting obligations continue during winding up.

Working with experienced insolvency lawyers

Navigating corporate insolvency requires extensive legal and financial expertise. Our experienced insolvency lawyers can guide UK companies to explore all options before liquidation. We assist clients to negotiate terms, file for protection, manage orderly wind ups, ensure legal compliance, and limit liability risks for directors. Contact us for practical advice and representation.