CRIMINOLOGY

Costs of Insolvency on Employers and Contractors

Costs of Insolvency to Employers and Contractors

Introduction

Insolvency is a term used to define an organisation's inability to payback debts it borrowed for the purpose of running its operations. The debts owed by an organisation are its financial obligations that it is required to meet. Failure to do so results in insolvency or liquidation of the company. Insolvency can lead to multiple implications with legal suits being the most common. Insolvent or liquidated organisations are obligated to sell off their assets to pay their debts.

There have been instances in which employers or contractors have become insolvent. The prevailing view is that insolvency reflects negatively on the image of the company. This leads us to the question that what are the implications of insolvency and how does it affect the company's goodwill in the long run?

Discussion

Contractor Insolvency

To begin the argument, we start with contractor insolvency. Insolvency of a contractor can lead to varying consequences. Contractors work under a contract with companies; therefore, the repercussions for a contractor depend on the nature of the contract. Generally, if a contractor becomes insolvent, it marks the end of the contract. The cancellation of a contract means a trustee will take over the debts of the contractor. Even though, the contract will become void, the parties involved would still be liable to receive compensation. There have been very few incidences where the trustee takes up the debts of the contractor. When there is no trustee involved, the contract becomes void. Such contracts are considered as rejected according to UK law. This results in the contractor defaulting on debts and loses credibility. Such contractors also have to suffer the possibility of reduced credit rating. Poor credit history can have serious consequences. Companies would feel insecure entering a contract with a party that ...