Insolvency advice is often misunderstood. Many directors see it as a last resort, something to consider only when the situation is already beyond control. In reality, knowing when to seek advice can protect directors and preserve options.
To understand when that moment really arrives, we caught up with John Bell, a Licensed Insolvency Practitioner and Senior Partner at Clarke Bell, who has decades of experience advising directors on corporate insolvency and company closure.
In this article, you’ll learn the early warning signs directors often miss, when seeking advice becomes a legal responsibility, and why acting sooner can make a material difference to the options available.
Why Directors Delay Seeking Insolvency Advice
Many directors delay seeking insolvency advice due to fear, uncertainty, and a lack of understanding. Insolvency is often associated with failure, loss of control, or reputational damage, which makes it a complex subject to confront.
John Bell sees this hesitation regularly. “Directors often think that speaking to an insolvency practitioner is a point of no return,” he explains. “In reality, early advice usually creates more options, not fewer.”
Optimism also plays a role. Directors may believe that cash flow problems are temporary, that a hefty invoice will soon be settled, or that a new contract will improve the situation. While this can sometimes be true, relying on hope without a clear understanding of the company’s financial position can increase risk rather than reduce it.
The Early Warning Signs Directors Should Not Ignore
Insolvency rarely happens overnight. It usually develops gradually, with warning signs appearing long before a formal crisis point is reached.
Cash flow pressure is often the earliest and most consistent indicator. Almost half of business owners report cash flow challenges: 47% say they have struggled at some point, and nearly one in ten describe cash flow as a major problem for their business. That level of pressure makes it easy for short-term fixes to become the norm rather than the exception.
John Bell highlights that timing is critical here. “By the time cash flow problems feel constant rather than occasional, directors are usually already closer to insolvency than they realise,” he says. “That’s often the point where getting advice can still prevent mistakes rather than just manage the fallout.”
When Seeking Advice Becomes a Legal Responsibility
There is a point at which seeking insolvency advice becomes more than a sensible precaution. It becomes a legal necessity.
If a company cannot pay its debts as they fall due, or if its liabilities exceed its assets, it may be insolvent. At this stage, director duties change. The focus must shift from protecting shareholders to acting in the best interests of creditors.
Continuing to trade without a clear and realistic plan can increase creditor losses and expose directors to personal risk. John Bell stresses that this moment is often misunderstood. “Once insolvency is likely, directors need clarity,” he says. “Knowing where you stand legally makes it easier to make responsible decisions.”
Why Early Advice Often Leads to Better Outcomes
Seeking insolvency advice early often leads to better outcomes for directors, creditors, and employees alike.
Early engagement gives directors time to understand their position and explore available options fully. In some cases, recovery may still be possible. In others, an orderly and planned exit may be the most responsible course of action.
Just as importantly, early advice reduces pressure. Instead of reacting to creditor demands, enforcement action, or last-minute deadlines, directors can make decisions in a more controlled and considered way. This often results in lower costs, fewer surprises, and less personal stress.
Common Misconceptions About Insolvency Advice
One of the most common misconceptions is that insolvency advice is only relevant when a business is failing beyond recovery. In reality, it is often about risk management and compliance rather than closure.
Another misunderstanding is that speaking to an insolvency practitioner commits the company to a specific outcome. This is not the case. Advice provides information and clarity. Directors remain in control of decisions, but with a clearer understanding of the consequences attached to each option.
These misconceptions are a major reason directors delay conversations that could help them earlier on.
When Should Directors Seek Insolvency Advice?
The simplest answer is earlier than most expect.
If cash flow problems persist, creditor pressure increases, or directors are unsure whether continuing to trade is the right course of action, that is the time to seek advice. Uncertainty itself is often a sign that professional input would be valuable.
As John Bell explains: “Getting advice isn’t about accepting failure. It’s about understanding your responsibilities and making informed decisions before pressure removes your ability to choose.”
Waiting until options have narrowed rarely improves outcomes. In most cases, it limits them. Early advice enables directors to maintain control of the process, minimise personal risk, and achieve a resolution that is orderly rather than reactive.
