Insolvency Act Sections Explained for Company Directors
If your company is facing debt, liquidation, creditor pressure or director conduct questions, you may see references to different sections of the Insolvency Act 1986.
These section numbers can look technical, especially if they appear in letters, insolvency advice, creditor correspondence or liquidation documents. However, many of them relate to practical issues directors need to understand, such as whether a company can pay its debts, how liquidation starts, what directors should avoid, and when transactions may be challenged.
This guide explains some of the Insolvency Act sections company directors are most likely to come across, what they broadly relate to, and when to speak to a licensed insolvency practitioner about your company’s position.
Do not ignore Insolvency Act references if the company is under pressure
If a section of the Insolvency Act is being mentioned in relation to your company, it may be because there are concerns about debt, liquidation, creditor interests, director conduct or transactions before insolvency.
This page is a plain-English guide only. If your company cannot pay its debts, has received creditor threats, or you are worried about personal risk as a director, speak to Anderson Brookes before taking further action.
Find the Insolvency Act section you have seen
Choose the section or issue that best matches your situation, then jump to the plain-English explanation.
Company insolvency and liquidation basics
Director conduct and personal risk
Transactions, repayments and asset movement risks
Company insolvency and liquidation basics
Sections that directors may see when a company cannot pay its debts, is considering liquidation, or is moving into a formal voluntary winding-up process.
Section 123: Unable to pay debts
What it is
Section 123 of the Insolvency Act 1986 is about when a company is treated as being unable to pay its debts. Directors may see this section mentioned where there are concerns that the company is insolvent or at risk of formal creditor action.
When it comes up
It may be relevant if the company cannot pay debts as they fall due, has unpaid creditor demands, has unsatisfied court judgments, or is facing pressure from HMRC, suppliers, lenders or other creditors.
Why directors need to be careful
If a company may be unable to pay its debts, directors need to be careful about taking on new credit, paying some creditors ahead of others, moving assets, continuing to trade without a realistic plan, or using strike-off as a closure route.
When to get advice
Speak to Anderson Brookes if your company cannot keep up with debts, has HMRC arrears, is receiving creditor threats, or you are unsure whether the business is insolvent.
Get confidential advice before creditor pressure, HMRC arrears or director concerns escalate.
Section 84: Resolution for voluntary winding up
What it is: Section 84 sets out circumstances in which a company may be wound up voluntarily. In practical terms, directors may see this section when a company is moving towards a formal voluntary liquidation process.
When it comes up: It may be relevant where shareholders are asked to pass a resolution to wind up the company, including where the company is entering Creditors’ Voluntary Liquidation.
Why directors should understand it: A voluntary winding-up resolution is a formal step. If the company is insolvent, directors should understand the process, creditor position and their own duties before taking action.
Section 100: Appointment or nomination of a liquidator
What it is: Section 100 relates to the appointment or nomination of a liquidator in a voluntary winding up. Directors may see this section when a company is entering a formal liquidation process.
When it comes up: It may be relevant in a Creditors’ Voluntary Liquidation, where the company and creditors have a role in the liquidator appointment process.
Why directors should understand it: Once a liquidator is appointed, they take control of the liquidation process, deal with company assets and creditors, and review relevant company and director matters.
If your company may be unable to pay its debts, Anderson Brookes can explain whether Creditors’ Voluntary Liquidation, company rescue, repayment negotiation or another route may be suitable.
Director conduct and personal risk
Sections that may become relevant where there are questions about director decisions, trading while insolvent, fraud, misfeasance or reuse of a company name after liquidation.
Section 212: Misfeasance
What it is: Section 212 is commonly associated with misfeasance. In broad terms, this can involve questions about whether someone involved in the company has misapplied money, breached duties or acted improperly before or during liquidation.
When it comes up: It may be relevant after a company enters liquidation and the liquidator reviews company records, payments, transactions, director decisions and the way company money or assets were handled.
Why directors should understand it: Directors should be careful where company money has been withdrawn, assets have been transferred, payments have been made to connected parties, or records do not clearly explain decisions made before insolvency.
Section 213: Fraudulent trading
What it is: Section 213 relates to fraudulent trading. It may be considered where business has been carried on with intent to defraud creditors or for another fraudulent purpose.
When it comes up: It may be relevant in liquidation where there are serious concerns about deliberate dishonesty, misleading creditors, taking credit with no intention to pay, or carrying on business for a fraudulent purpose.
Why directors should understand it: Fraudulent trading is a serious matter. If you are worried about how company trading, borrowing, customer deposits, supplier credit or creditor communication may be viewed, take advice early.
Section 214: Wrongful trading
What it is
Section 214 is commonly linked to wrongful trading. It can become relevant where a company has gone into insolvent liquidation and questions are raised about whether directors continued trading when there was no reasonable prospect of avoiding insolvent liquidation.
When it comes up
It may be mentioned where a company continued taking credit, placing orders, accepting customer payments, using supplier terms, increasing HMRC arrears or trading on when the financial position was getting worse.
Why directors need to be careful
When a company is in financial difficulty, directors should focus on creditor interests and avoid worsening the position. Good records, realistic forecasts, careful decision-making and early professional advice can all be important.
When to get advice
Speak to Anderson Brookes if your company cannot pay debts, creditor pressure is increasing, HMRC arrears are building, or you are unsure whether continuing to trade could create personal risk.
Get advice before the company’s position worsens or director concerns escalate.
Section 216: Reuse of a company name after insolvent liquidation
What it is
Section 216 places restrictions on the reuse of a company name after insolvent liquidation. Directors may hear this referred to as the “phoenix company” name rule or the prohibited name rule.
When it comes up
It may be relevant if a director of an insolvent company wants to be involved in a new company or business using the same name, a similar name, or a name that suggests a connection with the liquidated company.
Why directors need to be careful
The rules can apply even where there has been no dishonesty in the failure of the old company. Reusing a prohibited name without meeting the required conditions can create serious consequences for directors.
When to get advice
Speak to Anderson Brookes before setting up, buying, managing or promoting another company with a same or similar name after insolvent liquidation.
Check the company name rules before using the same or a similar trading name.
If the company is under creditor pressure, cannot pay its debts, or you are concerned about wrongful trading, director conduct or using a company name again, Anderson Brookes can help you understand your options.
Transactions, repayments and asset movement risks
Sections that may apply where money, assets, repayments or transactions before insolvency are reviewed or challenged.
Section 238: Transactions at an undervalue
What it is: Section 238 relates to transactions at an undervalue. In broad terms, this can include situations where a company has given away assets, sold assets for significantly less than they were worth, or entered into a transaction that did not provide proper value back to the company.
When it comes up: It may be relevant in liquidation or administration if the liquidator or administrator reviews transactions before insolvency and believes company assets were transferred or sold too cheaply.
Why directors should understand it: Directors should be careful about transferring company vehicles, equipment, stock, cash, property or other assets before insolvency, especially to connected parties, shareholders, directors or family members.
Section 239: Preferences
What it is: Section 239 relates to preferences. This can become relevant where a company has put one creditor, guarantor or connected party in a better position than they would otherwise have been in if the company entered insolvency.
When it comes up: It may be considered in liquidation or administration where payments were made shortly before insolvency, especially if some creditors were paid while others, such as HMRC, suppliers or lenders, were left unpaid.
Why directors should understand it: Directors should be cautious about repaying selected creditors, connected companies, personal guarantees, director loans or family-linked debts when the company is already under financial pressure.
Section 423: Transactions defrauding creditors
What it is: Section 423 relates to transactions at an undervalue entered into for the purpose of putting assets beyond the reach of a person who is making, or may make, a claim, or otherwise prejudicing that person’s interests.
When it comes up: It may be relevant where assets have been moved, gifted, transferred or sold for less than their value and creditors later argue that the transaction was designed to avoid or reduce claims against the company or an individual.
Why directors should understand it: If a company is under pressure from creditors, HMRC, lenders or legal claims, moving assets without taking advice can create serious issues. Directors should be especially careful where connected parties, family members or newly formed businesses are involved.
If company assets have been sold, transferred, gifted, repaid or moved while the business was under creditor pressure, Anderson Brookes can help you understand how this may be viewed in liquidation.
Not sure which Insolvency Act section applies?
If your company is facing creditor pressure, HMRC arrears, liquidation, director conduct questions or concerns about transactions before insolvency, Anderson Brookes can help you understand your position.
The right next step depends on whether the company can pay its debts, whether liquidation is likely, whether creditors have been affected and whether there are any risks for directors personally.
Insolvency Act sections FAQs
Answers to common questions directors ask when they see references to Insolvency Act sections during company debt, liquidation or closure discussions.
What is Section 123 of the Insolvency Act?
Section 123 is commonly linked to whether a company is unable to pay its debts. Directors may see it mentioned where a company cannot keep up with debts as they fall due, has creditor demands, has unsatisfied judgments, or is under pressure from HMRC, suppliers or lenders.
Does Section 123 mean my company is insolvent?
What is wrongful trading under Section 214?
Wrongful trading may become relevant where a company has gone into insolvent liquidation and questions are raised about whether directors continued trading when there was no reasonable prospect of avoiding insolvent liquidation.
What is the difference between wrongful trading and fraudulent trading?
Wrongful trading is usually linked to continuing to trade when insolvent liquidation could not reasonably be avoided. Fraudulent trading is more serious and involves carrying on business with intent to defraud creditors or for another fraudulent purpose.
What is misfeasance under Section 212?
Misfeasance can involve questions about whether company money, assets or powers have been misused before or during liquidation. It may be considered when a liquidator reviews director conduct, payments, withdrawals, transfers and company records.
What does Section 216 mean for phoenix companies?
Section 216 restricts the reuse of a company name after insolvent liquidation. It may apply if a director wants to be involved in another business using the same name, a similar name, or a name that suggests a connection with the liquidated company.
Can I start another company after liquidation?
Starting another company is not automatically prohibited, but directors need to be careful about company name reuse, asset transfers, customer confusion, creditor interests and any conduct issues from the previous company. Take advice before using a same or similar trading name.
What is a transaction at an undervalue?
A transaction at an undervalue may involve company assets being given away, sold too cheaply, or transferred in a way that does not provide proper value back to the company. This can be reviewed if the company later enters liquidation or administration.
What is a preference in insolvency?
A preference may arise where one creditor, guarantor or connected party is put in a better position than they otherwise would have been if the company entered insolvency. Directors should be cautious about selective repayments when a company is already under financial pressure.
Should I get advice if an Insolvency Act section is mentioned?
Yes, if the company has debts, HMRC arrears, creditor pressure, liquidation concerns, asset transfers, director loan issues or worries about personal risk. Anderson Brookes can help you understand what the reference may mean in practical terms.
Need help understanding Insolvency Act sections?
If your company is under pressure, the most important step is to understand the position before it escalates. Anderson Brookes can help you assess company debts, creditor pressure, liquidation options, director risk and transactions before insolvency.
