The recent collapse of Woolworths serves, in the media, as a weathervane for the economy but the folding of small businesses, which rarely makes the papers, is also of great concern in the current climate. Small business insolvencies are expected to rise by 41 per cent on top of 2007’s figures and if your company is beginning to flounder then it is vital that you contact an insolvency lawyer if you want to avoid becoming a statistic.

To help guide you through the process of choosing an insolvency lawyer and to give you an idea of what to expect from the service, TakeLegalAdvice.com has asked insolvency lawyers for their opinions.

What an insolvency lawyer does

An insolvency lawyer can play various roles for a business says Debbie Brett (right) of insolvency lawyers Blandy & Blandy. If you are a creditor, an insolvency lawyer can help extract payment from a debtor while for debtor companies they will help dispute winding up proceedings.

“An experienced insolvency lawyer will be able to identify the commercial options available to the client and whether there is a route to the business being saved,” says insolvency lawyer Simon Jacobs (below) of London firm Seddons.

“An insolvency lawyer can then guide directors and help get a formal deal with creditors.”

When to consult an insolvency lawyer

“Consult an insolvency lawyer as early as you can in the game,” says Brett. “Something as drastic as insolvency is about prevention rather than cure.”

Brett particularly emphasizes the importance of promptly consulting an insolvency lawyer for directors who could be personally liable. Nicholas Philips (right) of City law firm William Sturges agrees. “It could reduce the risk of directors’ disqualification proceedings against you,” he says, “and of a demand that you contribute to the company’s assets if it is insolvent when wound up."

Jacobs agrees on the importance of consulting an insolvency lawyer early. “For instance if there is a real concern that a client isn’t going to pay a bill and it will have serious ramifications on the business then an insolvency lawyer can apply pressure on the debtor to get it paid.”

“If everything is left to the last minute then it becomes more difficult and the options can become less generous,” says Jacobs.

What to look for in an insolvency lawyer

Insolvency lawyer Chris Jones (right), of the Leeds office of Irwin Mitchell, says that the fast-moving nature of such work means that responsiveness is an essential quality in an insolvency lawyer. Since it is a very technical area of law, commerciality is vital and Jones also emphasizes the importance of value for money. Using an insolvency lawyer tends to be an expensive service anyway so you should ensure that you are not paying over the odds.

“The crux of the matter is to identify assets and liabilities and to be able to assemble a feasible strategy so it is important that your insolvency lawyer has commercial experience,” says Jacobs.

Hand-holding is a large part of what an insolvency lawyer does, according to Brett, so you need someone who you are able to pick up the phone to and get practical advice from.

Brett also recommends that you use an insolvency lawyer from a firm that can offer a range of services. Access to an employment department, for instance, will be useful if you are making redundancies.

How you can assist your insolvency lawyer

“Be completely honest no matter how painful it might be,” says Brett. You need to tell your insolvency lawyer anything that might affect your financial position and Chris Jones says you should not hold anything back simply if you consider it irrelevant or to illicit the advice you want to hear.

Jacobs says: “You need to make sure your insolvency lawyer has up-to-date management accounts and an understanding of the order book and the company liabilities.”

The current climate

All the insolvency lawyers interviewed predicted a continued upward trend in insolvencies and warned businesses to take precautions.

“If you want to limit your exposure you need to run checks and refrain from extending credit,” says Brett. Jacobs, meanwhile, emphasises the particular importance of such action for retail organisations and advises looking at overdue accounts carefully and thinking about making alternative arrangements.

“Keep a close eye on cash and management information,” says Jones, “and don’t panic.”

Click here to find an insolvency lawyer

Useful links

TLA guide to debt recovery solicitors

TLA guide to commercial solicitors

Redundancies: Employment solicitors explain how to avoid litigation

Insolvency Lawyers' Association