36 DEBT RECOVERY
LEGAL OPTIONS FOR RECOVERING DEBT
by Mark Hague Associate partner, Farleys Solicitors
Debt Recovery Specialists
Whether you are chasing or facing business debts, you need practical legal advice you can trust.
Whatever the issue, Farleys’ team of debt recovery experts can help you reach a solution that works for you and your business.
Get in touch with our team today.
Company A is owed £50,000 by Company B.
Company B “dithers and delays” in making payment. Promises are made and broken and Company A’s patience rightly wears thin.
Before issuing proceedings, Company A reviews the accounts of Company B. They are solvent, just, with some assets but other significant liabilities.
Should Company A:
1. Sit back and wait for Company B to go bust?
2. Issue a claim in the usual way seeking a judgment?
3. Issue either a winding up petition or an administration application?
The court fee for issuing a £50,000 claim is £2,500. Legal fees are likely to be two to three times that amount depending on the complexity of the issues.
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Even after issuing the proceedings, there are multiple hoops for a claimant to jump through to
obtain a judgment and even once obtained, there are more hoops to jump through to enforce that judgment so the claimant can be paid.
Issuing insolvency proceedings, especially an administration application can be a much cheaper way of placing the defendant company into insolvency than the usual court route. The consequences for the directors of a company placed into administration can be personal liability for the company’s debts, so directors will often do all they can, and pay up to avoid the administration order being made.
An administration application isn’t suitable in all circumstances and ought only to be pursued when one of the three purposes of administration can be achieved and it is likely there will be realisations to enable the claimant to be paid.
It is, however, a process which is under used by most practitioners who act on behalf of clients when recovering debts.
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Businesses have accumulated record levels of borrowings and debts during the pandemic.
Covid-related loans totalling around £80bn were handed out, on top of which rent arrears built up and HMRC allowed mass deferrals of PAYE and VAT.
Working with businesses to manage the financial impact of the pandemic
In restructuring and insolvency, we know that it is key when advising a business, to look at all routes of action and explain viable options to the owners. Through our wider Group, we provide complete support options and have the resource and specialist knowledge to help companies and individuals deal with financial and operational challenges as well as opportunities.
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Unfortunately, apart from some forgiveness by landlords, all of these extra liabilities will have to be repaid at some stage.
All might have been well, if the pandemic hadn’t lasted so long and then been followed immediately by supply chain disruption, labour shortages and rampant cost inflation.
Businesses were supposed to have bounced back quickly after the initial Covid shock, but for many this just hasn’t happened.
Entrepreneurs are now juggling scarce cash resources to finance ongoing trading and to try to pay off
those legacy debts.
Two things are vital now. One is to have a thought-through, pragmatic plan for allocating cash between competing claims.
The other is managing the expectations of creditors, which means maintaining a regular dialogue with them.
The most important thing is not to promise what can’t be paid. Far better to be honest and negotiate delayed payment terms and even debt write offs.
The sooner this is started, the better the outcome and of course, the relentless stress of coping with creditor pressure can be reduced.
Most creditors know the problems businesses are facing and would much rather recover some of what they’re owed, rather than lose everything by forcing a debtor over the edge into insolvency and at the same time lose a customer.
by Ian McCulloch Partner, Opus
Advert for Lancashire Business View
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18/08/2022 17:31
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