​Financial problems are a fact of business life. They are not merely the result of a lack of experience or know-how from the business owner but also a result of external factors that are beyond the owners control, such as new competitors, defection of suppliers or a rapid turnover of staff. The key to overcoming them is to anticipate them and act quickly.

Smaller businesses are particularly prone to financial difficulties as they often lack resources to adapt to rapidly-changing market conditions. It is essential to keep a close eye on your finances, especially as potentially serious problems are not always immediately apparent.

A limited liability company that is unable to meet debts due should seek professional assistance from a lawyer or accountant. Be aware that as director or shareholder of the company, you must take proactive steps to minimise the impact for creditors. You will be personally liable with the risk of facing prosecution and losing personal assets if the company goes bankrupt.

When filing for bankruptcy is the only option left for a business owner, it pays to cut losses, initiate proceedings sooner rather than later. A company that has gone bankrupt needs to go through an official dissolution process. There are 2 types of dissolution:

The business owner or the shareholders may decide to place their company into voluntary liquidation by passing a special resolution appointing a liquidator to wind up the company’s affairs. Such a person is usually a chartered accountant who has experience in the investigation of a company’s financial affairs and the sale of company assets and interests for the benefit of company creditors.

Enforced dissolution is a decision taken by the Court of Laws usually following a legal action by unpaid creditors. Enforced dissolution can happen in the following cases:

  • if the business of the company is suspended for an uninterrupted period of twenty-four months;
  • the business is unable to pay its debts
  • the number of members of the company is reduced to below two and remains so reduced for more than six months (this does not apply to single member business)
  • the number of directors is reduced to below the minimum prescribed by article 137 of the Companies Act and remains so reduced for more than six months;
  • the court is of the opinion that there are grounds of sufficient gravity to warrant the dissolution and consequent winding up of the company;
  • when the period, if any, fixed for the duration of the company by the memorandum or articles.

Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
The European Commission's second chance in business website provides help and advice when it looks like a business is getting into difficulty. It provides hints on spotting early signs of trouble , a financial health check tool and golden rules for businesses in difficulty.

Insolvency Prevention and Second Chance​

Skip to content