Can I predict if a company in the UK may get Bankrupt?

Predicting a company's path to bankruptcy isn't easy. While there are always signs that a company in the UK may get bankrupt, the system allows for a company to recover at any time. Knowing a company's status with respect to bankruptcy may be very important, whether you're preparing to do business with said company or whether you're an employee worrying about the security of your job.

Understanding bankruptcy in general and the bankruptcy laws in the UK is paramount for detecting whether a company in the UK may or may not get bankrupt. Bankruptcy is a legal situation in which a debtor finds himself unable to repay his debts. However, in legal terms, in UK bankruptcy is used to refer only to an individual's situation. When talking about companies, the legal term used is liquidation (or dissolution), governed by the Insolvency Act which also regulates the principles of administration. Still, bankruptcy is also used in informal conversations even when talking about companies.

How does a company get into this situation? In most cases, this happens when a company's expenses grow and surpass its income from sales. The particular situation can be blamed on poor managership skills, a general economic downturn or sudden changes in the company's target market.

The easiest way to tell whether a company is heading downhill is by observing the value of its stock at the stock market. Following the stocks is a good way because their price measures the interest in the company. Naturally, a high interest shows the confidence that brokers have that the stock will help them gain and this can only happen when the company is on a positive trend. Brokers tend to be well-informed thus following their behavior with respect to a company's stock can be very helpful.

Keeping an eye on the economic press (whether printed or online) for news about your target company is another straightforward way of observing its evolution or involution. Bankruptcy is announced by news in the likes of sudden management shifts, key people leaving, poor financial results or large-scale restructuring. These tend to be observed by the press for medium to large enterprises

However, following the stock market or the press can be a tedious job and may not be something you would wish to dedicate time to. Luckily, there are also more mundane ways of telling whether a company is on a positive trend or heading down to bankruptcy.

If we're talking about a retailer, for example, it is easy to see whether the company is replenishing its stocks of products or whether it holding sales trying to clean out its wares. A company in good standing can afford to keep its wares full foreseeing sales, but one in trouble will keep postponing calling for supplies. Empty shelves, having certain regular products missing or removed from the offer outright are clear signs of trouble.

When things get closer to the edge, an important step that everyone tends to give up on employer extra benefits, such as free lunches, various payed expenses, cut down bonuses and vacation offers. Cutting down expenses is already a desperate measure to prevent bankruptcy and a very clear sign that the company is in peril.

Next comes the restructuring of positions within the company. On the first go-around, this doesn't necessarily mean firing people but a redistribution of responsibilities in a bid to justify salary cuts. The salary cuts themselves are another sign that the company is clutching at straws. Firing people outright usually follows shortly in a more radical restructuring, as the redistribution of responsibilities can rarely help a company in deep financial trouble.

The next observable step would be the bankruptcy itself. Whether or not a company has filed for bankruptcy (insolvency as the law calls it) can be discovered by ordering a credit check from specialized services such as Experian or by petitioning the court where the creditors have petitioned for the company's insolvency. However, using a specialized service may provide you with better, more accurate and more complete information. The reports provided are complete and accurate with financial information and insolvency process status, but they do come at a price. This may be particularly interesting if you are a stakeholder but otherwise it may not be worth the expense.

As mentioned before, at any stage a company may avoid the actual state of bankruptcy. A change in financial strategy or cutbacks in expenses may save the company. Even as the insolvency process starts, a restructuring of debts may avoid an actual financial collapse. But keeping an eye out for these signs will help you tell whether the company is run well or poorly, whether you have a competent business partner or whether your job has a future.

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