Trading whilst insolvent

In this blog of mercury lawyers in Marbella, Malaga and now mercury lawyers in Sotogrande, Cadiz we are going to talk about of trading whilst insolvent.  

 In these dark days of COVID, economic hardship is an unwelcome fact of life. Certain sectors, such as retail, hospitality and tourism, all of which play an important part in the economy of the Costa del Sol, have been hit particularly hard. Hotels are closed, restaurants on restricted opening hours and people shopping online have had their effect.

If things are not going well for your business you need to think whether or not you are trading whilst insolvent. The definition of insolvency is being unable to pay your debts as they fall due. Note that if your creditor gives you extra time to pay, you are not insolvent because the debt is not due until the extension of time given by the creditor has expired.

What is insolvency? not being able to pay your debts when they are due

The legislation around trading whilst insolvent is designed to prevent company directors continuing to incur debts for the company which they know, or ought reasonably to have known, they will struggle to repay. There will come a point in time when it becomes obvious, or ought to be reasonably obvious to the directors, that a company will never be able to pay its debts as they fall due and they should therefore cease trading and thereby avoid further debts from creditors who innocently lend them money or give them supplier credit.

The reason directors need to be aware of this legislation is that it may affect them personally. If a liquidator is appointed to wind up a company and finds that he should have been appointed earlier he may determine that the company was trading whilst insolvent. This finding will allow him to proceed against the directors personally to contribute to those company debts thus making the directors liable for those debts. This can lead to attachment of the personal assets of the director and even bankruptcy. Mercury Abogados has a wide experience in advising companies in financial difficulty and the various protections that the law provides to shield companies from their creditors. Don't hesitate to get in touch for an informal and free discussion of the options.

Do not hesitate to contact our Law Firm in Marbella and or our Law Firm in Marbella Sotogrande our expert lawyers in commercial law in Marbella, Málaga and or our expert lawyers in commercial law in Sotogrande, Cádiz will assist you in any questions about the commercial or civil law procedure. Our expert lawyers in civil and procedural law would be delighted to assist you.