Options When You Are Owed Money By A Struggling Company

Reuters have recently released stats showing a 21% annual rise in company insolvencies in November in England and Wales. With rising utility costs, coronavirus-help schemes coming to an end and reduced consumer spending, this hardship is not unexpected, and is unlikely to reverse any time soon.

This means more and more companies will be left being owed money by a debtor who cannot pay their debts. Ensuring your customers pay their debts can help manage your cash flow and stop your business joining these statistics. But what should you do when your debtors are struggling to meet their obligations?

The options available to a business when they are trying to recover a debt

1. Negotiate a settlement figure or payment plan

If the business has not yet entered liquidation or ceased trading, you may be able to negotiate a settlement figure or payment plan. Negotiation can be done directly, through solicitors, or with an officially appointed mediator. A debtor might be unable to settle their debt in full, but be able to make a smaller payment, or pay over time. While it may result in a smaller pay out, negotiating a settlement figure has several benefits. Meeting in the middle can ensure you get some payment, rather than none, which may be the case if the company becomes insolvent. Negotiation also tends to preserve your relationship with the debtor, if they may financially recover and you would like to continue working together, a settlement may leave your relationship on better terms.

Of course, not every business will be able to write off large sums or take instalments, and the relationship between yourself and the debtor may have already deteriorated. If this is the case, further action may need to be taken.

2. Company Voluntary Arrangement (CVA)

If your debtor enters insolvency, it may still be possible to recover some funds. A CVA is an agreement reached and administered by an insolvency practitioner, whereby an insolvent company can pay back their debts in instalments and be allowed to continue trading.

If your debtor instructs an insolvency practitioner who wishes to enter a CVA, they will contact all creditors and invite them to vote. It is important that you file a proof of debt form as soon as possible and make yourself known to the practitioner, to ensure you can take part in this process. A CVA may allow you to recover your debt in full, although this is only possible if an insolvency practitioner has been appointed.

3. Winding up petition

A winding up petition is a last resort and will only be recommended if all other avenues to recover your debt have been exhausted. If successful, creditors can have an insolvency practitioner appointed to ‘wind up’ or liquidate the company and repay debtors using the proceeds.

If another creditor has already petitioned, you can support them, allowing the petition to continue even if the petitioning creditor is paid, or withdraws. Winding up is a group remedy, secured creditors and costs will be paid first and the petitioning creditor does not get priority. A winding up petition is costly, and recovery is not guaranteed, this will only be recommended where the debtor has very limited funds and the relationship has entirely broken down.

Comment

Ensuring your debtors pay is a key part of managing your business’s cash flow and is increasingly important in the present-day economic climate. Finding out your debtors are struggling can be a confusing and worrying situation.