Take one technology, media and politics website. Add a 28-year-old online entrepreneur who used to be called Milo Wagner, but is now called Milo Yiannopoulos. Don't add any paid invoices to freelance contributors - these could leave a sour taste in the mouth. Finish with an unpaid editor and a legal claim for £16,853.

You've got The Kernel's secret recipe, and it's one that's been stewing for some time. Contributors have reportedly been disputing payments for several months, and an estimated £10,000 or more is still owed to past writers and in copyright claims to photographers whose works were allegedly used without permission.

The bulk of the financial burden now borne by The Kernel comes from former editor Jason Hesse, however, who left the site last May and has seen a claim for unfair dismissal and unpaid wages go uncontested by the site.

As a result, he is owed almost £17,000, which is now subject to a High Court enforcement order that could lead to The Kernel's owners, Sentinel Media, being forcibly wound up.

A Lonely Leader

It is hard to judge how seriously Yiannopoulos is taking the situation - his Twitter profile, @Nero, continues to be regularly updated, and his 'bio' text has changed to read: "Journalist and spectacularly public entrepreneurial failure."

Just this morning (March 5th 2013) he replied to one supporter saying: "'Man up and start something else' seems to be the order of the day."

But this is not Yiannopoulos's first directorship; he was also a director at Counterknowledge Ltd, which was dissolved in November 2010, and at Hipster Ventures Ltd, which dissolved in January 2013.

He has been sole director of Sentinel Media since July 2012, when David Rosenberg reportedly stepped down from his role; Rosenberg was also at Hipster Ventures until the same time.

Mr Hesse told MediaGuardian: "Milo never paid me a penny for the work I did as editor, nor for the three months of hosting bills I paid for The Kernel, nor for the money I lent to him personally.

"Why he thinks he can just get away with it is beyond me. I hope that the High Court's order will help him finally understand that it isn't his choice to decide whether or not he wants to pay me; it's the law."

'Remorse and Unhappiness'

The Twitter account @Nerowatch posted an image on March 5th, 2013, claiming to be of Yiannopoulos's letter to creditors announcing his intention to cease trading at Sentinel Media within seven days.

In the undated letter, Yiannopoulos allegedly advises: "I invite those creditors whose outstanding debts exceed £750 today to apply for the issuance of a winding-up order, as is your right. The company will not defend it."

He adds that, if he does not receive notice that anybody has done this by "5pm this Friday", he will simply cease trading and inform Companies House accordingly.

While the Yiannopoulos letter says "this is a matter of sincere remorse and unhappiness to me personally", it will come as a much more significant cashflow concern to those contributors who are owed £750 or more, and are unlikely to ever receive those funds.

However, it would appear that this is simply a case of jumping before being pushed, as Companies House records show that the parent company is due to be struck off in three months' time anyway, for failing to submit accounts on time.

Practical Considerations

If you are a creditor of The Kernel, Sentinel Media or any other insolvent business, you face a stark choice. Spend more and potentially increase your loss to wind the company up, or do nothing and either write off the balance or hope another creditor makes an application to place the debtor into formal insolvency.

So the big question is, is it worth any creditor spending £750 to place the company into formal insolvency?

Probably not.

Why? Well because quite frankly we doubt the company has any saleable assets. As far as we can tell the current assets of the company are:

The Domain 

A Whois search on kernelmag.com shows this domain has been registered by a proxy privacy service. As such it is impossible to be certain if this domain is actually owned by Sentinel Media Ltd. It may well be registered to a completely separate third party.

The 'Nutshell' Mailing list

This appears to be the main source of income for the debtor company, a paid-for weekly mailing list that costs subscribers £5.50. However, the legitimacy and the legality of this list is now in doubt, as it would appear that Sentinel Media Ltd was not registered under the Data Protection Act. This could mean that the list itself and the contact data it contains is largely worthless.

The Site Content

With numerous contributors to the site vocally stating that they remain unpaid, it is entirely possible that the content of the site is not the property of the debtor company. Canny freelancers who have shown a considered approach to their credit control will more than likely have a claim on the copyright.

Physical Assets

With The Kernel being a solely online business, it is extremely unlikely that the company holds any physical assets of any worth. In our experience of insolvent businesses, it is probable that the only assets are limited  to some furniture and computer equipment, none of which holds its value at auction, and which can be expected to raise approximately 10% of its value at sale.

The story highlights the importance of ensuring your clients are creditworthy before allowing them to run up significant bills that they may be unable to settle in full, or even in part - in all instances, you should act to ensure that the credit you issue to clients is based on sound, factual evidence, and not simply on the reputation of an individual such as Yiannopoulos, or public claims of having 'sunk money' into a business which are not supported by the reported facts.

In this instance, there is little evidence that Yiannopoulos put significant funds into Sentinel Media - its issued share capital appears to be just £1 - and the comments of Jason Hesse suggest that at least some of the firm's funds came not from Yiannopoulos, but from Hesse himself as personal loans.

When a business is operating in such a way, its apparent financial strength is simply masking still more lines of debt - and only an in-depth, formal investigation of its creditworthiness can be expected to reveal the truth.

Update:

The Kernel is now running a farewell piece from Mr Yiannopoulos, who states:

"It is time, however, to draw a line gracefully under what we have achieved, to take stock, to express our gratitude, and to think about the next bit of the journey."

We can not imagine that many of the contributors who still have invoices unpaid will call this a "graceful" exit and we would strongly urge any creditor who believes they have a complaint to contact The Insolvency Service at the Department for Business Innovation and Skills.