Q1 2019 has seen the highest underlying level of company insolvencies of any quarter since Q1 2014

 

Quarter 1 2019

Rise compared with Quarter 1 2018

Number of company insolvencies

4,187

5.1%

Number of individual insolvencies

31,257

15.9%

But what does insolvency – corporate or individual – mean in terms of business insurance?

The answer is to be found in the duty of making a “Fair Presentation of Risk”. You know, those things of which you should disclose to the Insurer at the time of taking out cover!

Criminal Acts and crimes that are spent under the Rehabilitation of Offenders Act 1974 do not need to be disclosed to your insurer. However, financial problems such as bankruptcy, CCJs and insolvencies (whether as individuals or of a business of which they were an owner or a director) must be declared and are never wiped off the slate so far as insurance is concerned.

Whilst this may seem unfair, the thinking behind it is that a fraudulent claim could be made by someone seeking to pay off debts – in simple terms a poor credit risk is a poor insurance risk.

Don’t take a chance!

Some forms of insurance such as motor, employers and public liability insurance are either legally required or an essential form or protection for a business. Tradesmen also need to have relevant covers, in case they damage a customer’s property and many need to protect valuable tools as well. Many professions require professional indemnity protection. And there are many other covers that may be required for the business being run.

In theses scenarios, it might be tempting to conveniently forget a bankruptcy, an insolvency, or a CCJ. Some people may, alternatively, try to hide behind a business as a shadow or de-facto director, registering their new business in a relative or friend’s name, to gloss over their financial past. Neither will work. Should a claim be made, the insurer is more than likely to discover the individual or previous company’s past. This will, in all probability, lead to them declining the claim, on the basis of failure to declare a material fact.

Yet, go without the cover and the financial ramifications are huge, particularly if the business’s actions harm, or cause the death of, another person.

So, what is the answer?

The best way forward is to be honest and frank about the financial past. From there, the person or business concerned should work with an insurance broker that has wide access to the insurance market and who can hopefully present their client’s case sympathetically to an insurer.

Many insolvencies occur through no real fault of the company or individual suffering them. We have recently seen this with the liquidation of The Good Food Chain, cleared in the NHS sandwich listeria case, but still forced into liquidation, due to the business interruption and negative publicity that surrounded the outbreak. Insurers do often listen to brokers who can put forward reasons for a bankruptcy, or who can demonstrate that their client is committed to not experiencing déjà vu and going down the same road again.

If you need to insure your business but are struggling to do so because of your financial history, please get in touch and allow us to discuss the options with you. Cover may be available, if you get the right broking assistance.

“We make it our business to understand your business”.

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Sources:

https://www.theguardian.com/business/2019/jun/28/food-supplier-liquidation-nhs-listeria-investigation-good-food-chain

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/798393/Commentary_-_Company_Insolvency_Statistics_Q1_2019.pdf

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/797647/Commentary_-_Q3_2018_domain_update.pdf