What to Choose Between Illiquidity and Insolvency

Illiquidity and insolvency are connected, but they are not the same. Illiquidity means a company is short of available cash, even though it may still have assets, invoices due, or future income. Insolvency is more serious and means the company cannot pay debts as they fall due or has liabilities greater than its assets. A temporary cash shortage may be manageable, but ongoing missed payments, HMRC arrears, creditor pressure, and no realistic repayment plan can indicate insolvency risk. Directors should review cash flow carefully and seek advice early to understand whether rescue, restructuring, or liquidation may be appropriate.