If you owe one or more of your creditors money that you are struggling to repay, it’s worth understanding the different types of action those creditors can take against your company. What will usually start as polite reminders can quickly escalate into persistent pressure, legal action and the nuclear option - a Winding Up Petition that could close down your business.
Here we discuss what each action involves and what you can do about it.
If a supplier’s invoice remains unpaid after the due date, the first communication you can expect from a creditor is a polite reminder that the payment is due and a request for it to be made as soon as possible. If you fail to make the payment, you can expect a more forceful late payment demand, typically giving you a set time frame to make the payment. At this point, interest may also be added to the debt.
If you still cannot make the payment, the next step could be a more formal letter notifying you of the creditor’s intention to start court proceedings to recover the outstanding sum.
What can I do?
At this point, communication is critical. Rather than burying your head in the sand, contact the creditor and explain why you are unable to pay the invoice and provide a realistic timeframe for doing so. Most creditors will want to avoid legal action, so keeping them fully informed could buy you some time and keep the matter out of court.
If you’re not communicating with the creditor or the creditor loses faith in your ability or willingness to pay, the next step could be to issue a County Court Summons, which could lead to a County Court Judgment (CCJ) being issued against your business.
At this point, you have 14 days to respond to the summons. You can request an extra 14 days to give you some breathing space to make the payment or decide what other action to take.
What can I do?
You still have time to make the payment now without any black marks against your company’s name. If you cannot pay the debt outright, it’s worth contacting the creditor to offer a sensible payment deal.
If you want to dispute the debt, now is the time to write your response. You’ll find detailed instructions about how to defend yourself against the claim on the summons.
If you do not make the payment, the court deems the debt to be valid and any defence you give is not accepted, then a County Court Judgment will be issued against you. At this point, you still have an opportunity to pay the debt before the CCJ becomes official and your company’s credit rating is affected.
If you pay the debt within 30 days along with any costs incurred, the CCJ will be set aside and it will not be registered with the credit reference agencies. If the debt remains unpaid 30 days after the judgment has been issued, the CCJ will act as proof that your company is insolvent and further, more severe action can then be taken.
What can I do?
If you can pay the debt and costs within 30 days of the judgment, at this point it’s a good idea. If you don’t, the judgment will be registered and stay on your credit record for six years, making it more difficult to access affordable credit during this time.
If you can’t pay the debt in full within 30 days but you still think the company is viable, it’s worth contacting the creditor to try to arrange a payment deal. That can prevent them from escalating the debt any further.
If you don’t pay a CCJ and the judgment is entered against you, the creditor can choose to take enforcement action to try to recover the debt. They do this by sending a Notice of Enforcement to your business address requesting that full payment of the debt is made within seven days. If it’s not, an enforcement agent can visit your premises and take control of goods that can be sold to cover the debt.
When the enforcement agent visits your premises, their priority will be to get you to agree to a deal to repay the debt in instalments. They’ll also ask you to sign a Controlled Goods Agreement, which is a list of company assets they can seize that cover the value of the debt. If you do not make the agreed payments then the enforcement agent can revisit and remove those assets. They will then be stored or sold immediately to cover the debt.
What can I do?
Even at this stage, it is still advisable to strike a deal with the creditor to repay the debt over time. Doing so can prevent further action that could prove to be far more damaging to your business.
It’s worth noting that refusing to sign a Controlled Goods Agreement is not an effective way to protect your business’s assets if you cannot agree on a payment deal. If you do, the enforcement agent can remove and sell goods on their inventory list immediately.
A Statutory Demand escalates what is already a serious situation. A Statutory Demand is a formal demand for a debt that has already been proven, which is why this action is usually taken after a CCJ is in place.
Once you receive the Statutory Demand, you have 21 days to pay the debt in full. If you fail to do so, the creditor can escalate things further by issuing a Winding Up Petition against your business.
What can I do?
Now things are getting serious. If your creditor has got this far they are very committed to collecting the debt, and if you don’t pay, they could take action to close down your business. If you cannot pay the debt in full, seek professional advice from a licenced insolvency practitioner immediately, as you do still have options.
At Begbies Traynor, we could help you propose a Company Voluntary Arrangement (CVA), which would freeze all legal action and allow you to repay your debts over time. Alternatively, we could consider restructuring your business via Administration.
On the other hand, it may be that the business is no longer viable, in which case, we could advise you about the best way to close it down to receive a better outcome and reduce the risk of personal liability issues for the company’s debts.
Issuing a Winding Up Petition against your business is an extremely serious statement of intent by a creditor and could lead to the liquidation of the business if the debt is not repaid.
Once a Winding Up Petition has been issued, you have just seven days to act before the company’s financial position becomes public knowledge. The company’s bank accounts will then be frozen, making it very difficult to trade without permission from the court. A date for the court hearing will be set, usually 8-10 weeks after the petition is issued, to decide whether a Winding Up Order should be granted. If it is, the company will be liquidated.
What can I do?
The future of your company now depends on the decisions you make, so you should seek professional advice. If you can, try to find the funds to pay the debt, potentially using emergency funding methods such as asset financing if required. If you can’t pay the debt immediately, you could ask the court to grant an adjournment to give you more time to pay.
Alternatively, you could try to enter into a Company Voluntary Arrangement (CVA) and create a payment plan with the petitioning creditor. If that’s not suitable, you could apply to the court to give you more time to explore whether Administration or a Pre-Pack Administration procedure could be viable.
On the other hand, it might be time to accept that the business is no longer viable and you have cash flow problems you cannot overcome. In that case, it may be advisable to place the company into a Creditors’ Voluntary Liquidation (CVL), which can lead to a better outcome than waiting for a creditor to close your business via Compulsory Liquidation.
If you’re struggling to pay your creditors and can’t see a way out, call us today to arrange a no-obligation consultation with one of our nationwide teams of licensed insolvency practitioners. We can help you understand all your options and find the best route back to business as normal.
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