You can reduce the risk of becoming insolvent by ensuring that your business is soundly financed and keeping good control of your cashflow. These are issues you should discuss with your advisors and your bank.
Building a good relationship with creditors - for example, your bank - can help to reduce the risk that they will instigate proceedings against you if your business does run into financial difficulties. The bank (and other creditors) can be more supportive if you keep them informed and have a good previous record of prompt payment.
Choosing an appropriate business structure will help to reduce the potential consequences should you become insolvent in the future. A limited company offers the most protection against personal bankruptcy should the business run into difficulty: you will not usually be personally liable for the company's debts unless you have given a personal guarantee. Taking out Directors and Officers Liability insurance can provide a further degree of protection.
Similarly, if you wish to trade as a partnership, trading as a limited liability partnership ('LLP') can help to reduce the degree of personal risk. An LLP is usually a more appropriate trading vehicle for professional practices that are unable to incorporate as a limited company - it is not really a 'partnership' at all.
If your business structure does offer some degree of protection, you should also try to avoid giving personal guarantees. If you must give a personal guarantee, negotiate to limit the amount it covers and how long it will last. Where several people are giving guarantees, try to avoid 'joint and several' liability which could make guarantors liable for all of a debt rather than just their share. In practice, however, it may not be possible to raise bank finance without giving a personal guarantee, and banks may not be willing to vary their standard guarantee terms.
Finally, as a director it is essential to keep a close eye on the company's financial position. As well as improving your chances of avoiding insolvency in the first place, this will reduce the likelihood that you will be held personally liable for wrongful trading (see 15), or be disqualified as a director, if the company does become insolvent.
