Discover the most common insolvency mistakes made by UK businesses - and how the right corporate insolvency solutions can make all the difference.
No one starts a business expecting it to fail. Yet each year, thousands of UK companies find themselves in financial difficulty, with many forced to close their doors permanently. In our work supporting distressed businesses, we see a common thread in the decisions that lead to insolvency - and just as importantly, in those that make recovery more difficult than it needs to be.
Understanding the pitfalls others have faced can offer valuable insight. In this blog, we’ll explore the most common insolvency mistakes we see business owners make and, more importantly, how to avoid them. With the right support and the right approach, there are always corporate insolvency solutions worth exploring.
6 Common Insolvency Mistakes (And What You Can Learn from Them)
1. Waiting Too Long to Ask for Help
By far the most frequent mistake business owners make is waiting too long to seek professional advice. It’s understandable - acknowledging financial trouble is daunting, and many hold out hope for a last-minute turnaround.
However, the reality is that delaying action often narrows your options. Rescue solutions such as company voluntary arrangements (CVAs), refinancing, or informal negotiations with creditors are most effective when implemented early. The longer financial problems are left to spiral, the more difficult it becomes to implement a viable recovery plan.
Lesson: Don’t wait until legal action is imminent. Engaging with a licensed insolvency practitioner at the first signs of trouble opens the door to more practical, constructive solutions.
2. Ignoring Director Responsibilities
Another serious but avoidable mistake is a lack of understanding around directors’ legal duties. Once a business is insolvent or approaching insolvency, directors must prioritise the interests of creditors. Continuing to trade while knowing the business cannot meet its obligations can lead to claims of wrongful trading, misfeasance, or even personal liability.
Lesson: As a director, you must be aware of your responsibilities when insolvency becomes likely. Seeking professional advice isn’t just about protecting the business - it’s also about protecting yourself from potential repercussions.
3. Failing to Monitor Cash Flow Properly
You’d be surprised how many otherwise successful businesses are caught out by cash flow mismanagement. Profitability does not always equate to solvency - without a clear picture of what’s coming in and going out, companies can quickly find themselves unable to meet their liabilities.
We often see directors rely on outdated spreadsheets or poor forecasting tools, leading to missed VAT deadlines, unpaid invoices, and mounting pressure from creditors.
Lesson: Effective cash flow management is a cornerstone of financial health. Use up-to-date tools, review your finances regularly, and flag pressure points early so they can be addressed.
4. Overcommitting Without a Contingency Plan
It’s not uncommon for businesses to overextend themselves - especially during periods of rapid growth. Taking on too much debt, expanding too quickly, or relying on a single large client for the bulk of income can all backfire if market conditions change.
One common example is directors committing to long-term leases, asset purchases, or supplier contracts without factoring in worst-case scenarios.
Lesson: Growth should always be planned carefully and with contingency in mind. Diversify income where possible, and ensure any long-term commitments align with your realistic cash flow and business projections.
5. Not Exploring Corporate Insolvency Solutions Early Enough
Many directors assume that insolvency automatically means liquidation. In reality, there are a range of corporate insolvency solutions available that can help preserve the business, protect jobs, and improve outcomes for creditors.
From administration and CVAs to pre-pack sales and time-to-pay arrangements with HMRC, the right solution depends on the company’s individual circumstances - but it starts with seeking the right advice.
Lesson: The earlier you understand the full spectrum of insolvency solutions, the better equipped you’ll be to act in the best interests of your business and stakeholders.
6. Poor Communication with Creditors
When financial problems hit, many business owners make the mistake of shutting down communication with creditors. While it’s uncomfortable to have those conversations, silence only damages trust and can lead to aggressive recovery action.
In many cases, creditors would rather come to a repayment agreement than pursue costly legal routes. Maintaining open, honest communication gives you a much better chance of finding a workable solution.
Lesson: Stay transparent with creditors. Engage in early discussions and seek professional help to negotiate repayment plans or propose formal arrangements like CVAs.
Final Thoughts: Mistakes Can Be Avoided with the Right Support
Every business faces bumps in the road - but insolvency doesn’t have to mean the end. With the right advice, most businesses have more options than they realise. At McAlister & Co, we specialise in corporate insolvency solutions that are clear, effective, and tailored to your needs.
We offer a safe, supportive space to explore your next steps - whether that’s restructuring, negotiating with creditors, or closing the business in an orderly and compliant way. Facing financial challenges? Don’t make the same mistakes others have. Speak to McAlister & Co today to explore the corporate insolvency solutions available to you. Book your free consultation now.